Interpretation and qualification of short-term employment in cross-border situation at Article 15(2)OECD MC

Abstract: The free movement of people and capital has enabled individuals and businesses to engage in cross-border transactions. Global economy and the competitiveness between international groups have acknowledged the necessity for a dynamic human workforce and openness of the labour market for mobility of workers within affiliated companies and different multinational enterprises. Cross-border short-term employment[1] has been crucial part of modern development of the international business.[2]  Mobility of workers puts several issues regarding taxation rights as the jurisdiction where the remuneration should be taxable is the core of the problem. States accordingly claim taxing rights based on the domestic law, consequently, situation of judicial double taxation arises. However, double tax treaties for decades now are being considered as great legal instruments to encourage and facilitate cross-border mobility and mitigate double taxation.  In today’s economy the tax treaty network is expanding and majority of these tax treaties are drafted in line with the OECD MC, while the fundamental provisions concerning taxation of cross-border income from employment are stipulated in Article 15. Still, despite the fact that it is considered as one of the most important Articles for many taxpayers due to its scope in cross-border situation and continuous review there is a lack of an consistent interpretation and legal certainty as one of the key points of discussion is the interpretation of the terms used which are not defined in the OECD MC itself. Thus, one of the most controversial issues of interpretation is the term “employer” in Article 15 OECD MC as assessment of who the real employer is for the seconded[3] employee can prove to be significant for the taxation rights of the one particular jurisdiction. Moreover, as the term is not defined in tax treaties contracting states refer to their own domestic interpretation according to Article 3(2) of the OECD MC. However, as some countries consider either the formal contractual relationship alternatively substantive approach other countries have no tax law definition of the term employer consequently differences are present. Due to its importance the interpretation of Article 15 in respect of the term “employer”, a reference to formal and material law sources can be made in order to interpret the term.  Thus, besides general rules of interpretation stipulated in Article (3)2 OECD MC, the VCLT and the Commentary to OECD MC have an important role in the interpretation process.[4] Nevertheless, despite having a number of legal remedies available the interpretation of the terms used in Article 15(2) remains challengeable and the conflict of interpretation between Contracting States is present. Thus, the necessity to have a unified interpretation of the term “employer” OECD has amended its Commentary to Article 15(2) in 2010 aiming to accord the requirements of many taxpayers engaged in cross-border employment.