Taxing Cross-Border Services: Two LATAM Experiences and a

Florida Tax Review Florida Tax Review

Volume 22 Article 29

2023

Taxing Cross-Border Services: Two LATAM Experiences and a Taxing Cross-Border Services: Two LATAM Experiences and a

Couple of Conclusions for the (Developing) World Couple of Conclusions for the (Developing) World

Andrés Báez Moreno

Universidad Carlos III de Madrid

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Conclusions for the (Developing) World,"

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1007

FLORIDA TAX REVIEW

Volume 22 2019 Number 3

Taxing Cross- Border serviCes: Two LATAM experienCes

and a Couple of ConClusions for The (developing) world

Andrés Báez Moreno*

aBsTraCT

Many developing countries have been trying to expand in the last

decades their taxing powers on cross- border services rendered by non-

residents beyond the rigid framework of the current international tax

regime. However, this expansion has been carried on unilaterally and

sometimes in an unplanned manner. This contribution describes the

Brazilian and Argentinian experiences and tries to extract some policy

lessons therefrom.

i. inTroduCTion .......................................................................... 1008

ii. The Brazilian experienCe: BaCk from oTher inCome

(misTakenly) To Business profiTs, or “you should

know whaT your TreaTies leT you do” ............................1010

A. Technical Services or Technical Assistance with

Transfer of Technology .......................................................1014

B. Brazilian Case Law and Brazilian Protocols .....................1017

C. Lessons .............................................................................. 1020

iii. The argenTinian experienCe: uninTelligiBle domesTiC

sourCing rules or “your TreaTies CounT for noThing

if your domesTiC law is noT in order” ........................... 1021

iv. ConClusions and epilogue .................................................... 1033

* Associate Professor of Tax Law, Universidad Carlos III de Madrid

(Spain).

1008 Florida Tax Review [Vol 22:3

i. inTroduCTion

Taxation of cross- border services has been a hot topic for developing

countries during the last decade. Whatever the reasons for this con-

cern, the truth is that developing countries have doubled their efforts to

negotiate double tax conventions, which deviate from the traditional

paradigm in the taxation of business income when it comes to taxing

cross- border services at source. Beyond the details, the endeavor is

always to attribute taxing rights to the source State in the absence of a

Permanent Establishment and irrespective of physical presence of the

service provider in said State. International organizations in charge of

the international tax regime appear to have taken this shift seriously and

either tried to bring order to the uncoordinated expansion of these “spe-

cial distributive rules”

or have simply taken note of the phenomenon.

The countries of the Latin American region are no exception

amongst developing jurisdictions with regard to their international tax

policy demands and particularly their wish to expand taxation of

1. Such is the case of the U.N. Committee of Experts on Interna-

tional Cooperation in Tax Matters (the Committee), which introduced a new

article 12A concerning Fees for Technical Services in the U.N. Model Double

Taxation Convention Between Developed and Developing Countries (2017),

un . org / esa / ffd / wp - content / uploads / 2018 / 05 / MDT_2017 . pdf [hereinafter U.N.

Model (2017)]. See also U.N. Dep’t ecoN. & Soc. Aff.: fiN., https:// www . un

. org / development / desa / ﬁnancing / (last visited Oct. 18, 2020).

2. The Organisation for Economic Co- operation and Development

(OECD) also considered tax treatment of cross- border services more than ten

years ago. OECD, The Tax Treatment of Services: Proposed Commentary

Changes: Public Discussion Draft (2006), oecd . org / ctp / treaties / 37811491

. pdf. However, no direct consequences resulted from this study beyond the

introduction of a Service- Permanent Establishment rule as an alternative

provision in the Commentaries to article 5 of the OECD Model. OECD,

Commentaries on the Articles of the Model Tax Convention, art. 5, at 92

(2010), https:// www . oecd . org / berlin / publikationen / 43324465 . pdf [hereinaf-

ter OECD, Commentaries]. More recently the OECD has recognized that

excessive or unwarranted payments to MNE afﬁliates— eroding the tax base

of developing countries (by, inter alia, fees for (management) services)— are

high priority BEPS Action items for developing countries. OECD, Two- Part

Report to G20 Developing Working Group on the Impact of BEPS in Low

Income Countries 19– 20 (2014), http:// www . oecd . org / tax / tax - global / report

- to - g20 - dwg - on - the - impact - of - beps - in - low - income - countries . pdf.

2019] Taxing Cross- Border Services 1009

cross- border services beyond the current— extremely limited—

framework of the (OECD) international tax regime.

Indeed, most coun-

tries in the region tax income obtained by non- resident service providers

in the absence of a Permanent Establishment (PE) located in the Source

State and even in the absence of other thresholds.

In line with this,

many of these countries try to preserve their domestic taxing rights at a

Double Taxation Convention (DTC) level, negotiating treaty rules

allowing source taxation of cross- border services in the absence of a tra-

ditional (physical or agency) or a speciﬁc Services- PE.

Clear though

these rules may seem at ﬁrst, it is worth noting that both, domestic

and treaty rules referring to cross- border services, pose challenging

interpretative problems in practice. In this respect, the Argentinian and

Brazilian experiences highlight these difﬁculties and, at the same time,

may serve as a guidance for those (LATAM) countries wishing to

expand their taxing rights to cross- border services rendered by

non- residents.

3. Although not always clear, taxation of cross- border services

seems to be on the agenda of several Latin- American countries. See Rodrigo

Barrios Correa, Uruguay’s Treaty Policy, 71 BUll. iNt’l tAx’N, no. 3/4, 2017,

¶ 3.9.5; Irma Johanna Mosquera Valderrama, The International Tax Treaty

Policy of Colombia, 67 BUll. iNt’l tAx’N, no. 4/5, 2013, at 238, 242– 43; Luís

Eduardo Schoueri, Brazil, in BRicS AND the emeRgeNce of iNteRNAtioNAl

tAx cooRDiNAtioN at ch. 4 (Yariv Brauner & Pasquale Pistone eds., 2015).

4. Most comparative work shows this trend even if it is neither

comprehensive nor particularly focused on the LATAM region. See Arianne

Pickering, General Report, 97A cAhieRS De DRoit fiScAl iNt’l 17, 30– 31

(2012) (included in issue on Enterprise Services).

5. In fact, 80 out of 279 signed, ratiﬁed or effectuated DTCs in the

LATAM region (including Mexico, Central America, South America, and the

Spanish- speaking Caribbean countries) include provisions, normally under

article 12 or 14 of the treaty, attributing taxing rights to the source state in

relation to cross- border services in the absence of a PE. More revealingly, 10

out of the 16 DTCs signed by a LATAM country during 2017, 2018, and 2019

include a provision, under article 12 of the treaty or in a separate provision

dealing with fees for technical services, attributing taxing rights to the source

State in relation to cross- border services in the absence of a PE. The introduc-

tion of a new provision in the U.N. Model (2017), supra note 1, art. 12A,

attributing taxing rights to the source State in relation to fees for technical

services has almost certainly led to an increase in the bilateral tax treaties that

incorporate these kind of rules.

1010 Florida Tax Review [Vol 22:3

The rest of this contribution is organized as follows: Part II crit-

ically analyzes the Brazilian case law on cross- border services and the

application of special treaty rules regarding income derived by non-

resident service providers from these services; Part III does the same

in relation to Argentina but with emphasis on domestic sourcing rules

on cross- border services. Both paragraphs are followed by a description

of the policy and interpretative lessons these and other countries may

extract from these experiences. Part IV contains a brief conclusion and

a general reﬂection on the importance of cross- border taxation of ser-

vices for the taxation of the digital economy.

This contribution does not address the issue of the appropriate-

ness, in terms of policy, of taxing cross- border services in the absence

of a PE or, more generally, in the absence of physical presence of the

service provider in the Source State.

ii. The Brazilian experienCe: BaCk from oTher inCome

(misTakenly) To Business profiTs, or “you should know

whaT your TreaTies leT you do”

The Brazilian Federal Revenue Ofﬁce surprised the (tax) world in 2000

when, by issuing the Declaratory Act COSIT 01/2000, it announced that

remittances under contracts for the provision of technical assistance and

technical services without the transfer of technology were subject to tax-

ation according to its domestic law even, and this is the surprise, in a

treaty context,

inasmuch as this income could be classiﬁed under the

Other Income article of Brazilian treaties, which normally grants unlim-

ited taxing rights to the source State by signiﬁcantly deviating from

article 21 of the OECD Model Tax Convention.

It is not worth wasting

6. I have dealt with that issue in a previous publication: Andrés

Báez Moreno, The Taxation of Technical Services Under the United Nations

Model Double Taxation Convention: A Rushed— Yet Appropriate— Proposal

for (Developing) Countries?, 7 WoRlD tAx J., no. 3, 2015, at 267.

7. For an English translation of this 2000 Act, see Leonardo Freitas

de Moraes e Castro & Alexandre Luiz Moraes do Rêgo Monteiro, Qualiﬁca-

tion of Services Under Double Tax Treaties in Brazil: Open Issues after Iber-

drola Case, 45 iNteRtAx 54, 59 (2017).

8. OECD, Model Tax Convention on Income and on Capital:

Condensed Version 2017, art. 21 (2017), https:// doi . org / 10 . 1787 / mtc_cond

- 2017 - en.

2019] Taxing Cross- Border Services 1011

time on the nuances of this strongly criticized position,

as it was later

on revoked by the tax authorities through Interpretative Declaratory

Act 5/2014, stating that amounts remitted abroad as compensation for

the provision of technical services without transfer of technology

could in no circumstances be classiﬁed as Other Income for tax treaty

purposes.

However, the end of the “Other Income versus Business Prof-

its” controversy would not bring peace to taxation of cross- border ser-

vices in Brazil. Indeed, as predicted by scholars and practitioners,

the

end of this polemic gave way to a discussion, which by the way was not

new in Brazil, on whether income originated by the provision of tech-

nical services without transfer of technology could be classiﬁed for tax

treaty purposes as royalties (article 12), or professional or independent

personal services (article 14) and thereby preserve Brazilian taxing

rights on these services in tax treaty situations. Should Brazilian Tax

Treaties follow the treatment of cross- border services under the OECD

Model Tax Convention, there would be no cause for controversy: cross-

border services would qualify as Business Income (article 7) and be not

taxable in Brazil in the absence of a PE. This is however not the case;

indeed most Brazilian Treaties

include a particular provision in their

9. See Vanessa Arruda Ferreira, Service Income Under Brazilian

Tax Treaties: The Possible End of the Article 7 v. Article 21 Battle, but the

Start of a New Old One?, 42 iNteRtAx 427 (2014); id. at 428 n.10 (referencing

literature).

10. Freitas de Moraes e Castro & Moraes do Rêgo Monteiro, supra

note 7, at 59– 60 (for an English translation of the 2014 Act).

11. See Vanessa Arruda Ferreira, The New Brazilian Position on

Service Income Under Tax Treaties: If You Can’t Beat’em, Join’em, 43 iNteR-

tAx 255 (2015) [hereinafter Arruda Ferreira, The New Brazilian Position];

Arruda Ferreira, supra note 9; Luís Eduardo Schoueri & Mateus Calicchio

Barbosa, Technical Services and the Application of Article 7 Under Brazilian

Treaty Practice: A Case Study, in tAx tReAty cASe lAW ARoUND the gloBe

2013, at 103 (Michael Lang et al. eds., 2013) (after the Copesul case).

12. All Brazilian treaties, with the exception of those with Austria,

Finland, France, Japan and Sweden. In the Protocol to the 1975 Treaty

between Brazil and Sweden that concluded March 19, 2019, a new provision

has been included in relation to this issue which reads as follows: “It is under-

stood that the provisions of paragraph 3 of Article 12 shall also apply to

payments of any kind received as consideration for the rendering of technical

services and technical assistance.” Protocol Amending the Convention

1012 Florida Tax Review [Vol 22:3

Protocol’s qualifying income derived from the rendering of technical

assistance and technical services as royalties,

and therefore potentially

taxable at source. Furthermore, most Brazilian Treaties

attribute unlim-

ited taxing rights to the source State in relation to Independent Per-

sonal Services if the remuneration for such services or activities is paid

by a resident of the source State or the income is borne by a PE or ﬁxed

base situated in that State. Additionally, most of these treaties enable

the application of article 14 to independent personal services rendered

by Companies.

Interpretative Declaratory Act 5/2014 concluded that the ren-

dering of technical services or technical assistance without transfer of

technology should be classiﬁed:

(i) under article 12 of the corresponding treaty if it con-

tained a reference in the protocol to technical services

or technical assistance along the lines described before;

(ii) under article 14 (or the corresponding Independent Pro-

fession article) if those technical services or technical

Between Brazil and Sweden for the Avoidance of Double Taxation with

Respect to Taxes on Income art. 12(5), Braz.-Swed., Mar. 19, 2019, Tax Ana-

lysts Doc. 2019- 30068.

13. The new treaties with Singapore (concluded May 7, 2018) and

Switzerland (concluded May 3, 2018) contain a new article 13 on Fees for

Technical Services along the lines of article 12A of U.N. Model (2017), supra

note 1. Agreement Between the Republic of Singapore and the Federative

Republic of Brazil for the Elimination of Double Taxation with Respect to

Taxes on Income and the Prevention of Tax Evasion and Avoidance art. 13,

Sing.- Braz., May 7, 2018, Tax Analysts Doc. 2018- 19384 [hereinafter Sing.-

Braz. Treaty]; Convention Between the Swiss Confederation and the Federa-

tive Republic of Brazil for Elimination of Double Taxation with Respect to

Taxes on Income and the Prevention of Tax Evasion and Avoidance art. 13,

Switz.- Braz., May 3, 2018, Tax Analysts Doc. 2018- 19169 [hereinafter Switz.-

Braz. Treaty]. We will later come back to this kind of provision.

14. With the only exception of the treaty with Japan, which only

allows the source State to tax according to article 13 (not 14 in that particular

treaty) of the treaty if the service provider has a ﬁxed base in the source State.

See Convention Between Japan and the Federative Republic of Brazil for the

Avoidance of Double Taxation with Respect to Taxes on Income, Japan- Braz.,

Jan. 24, 1967, 682 U.N.T.S. 195.

2019] Taxing Cross- Border Services 1013

assistance are related to the technical qualiﬁcation of a

person or group of persons may the treaty of course

allow for that taxation at source; and

(iii) under article 7 in circumstances different from (i)

and (ii).

However, case law in Brazil prior and subsequent to Interpretative

Declaratory Act 5/2014, has been arguing that services performed by

non- resident service providers were not subject to withholding tax in

Brazil even if treaties containing Protocols extending the concept of

royalty to also embrace technical services and technical assistance would

apply.

None of these decisions mentioned the possibility of applying

article 12 and/or article 14 of the corresponding treaties in order to pre-

serve Brazilian sourcing rights. The straight application of article 7 pre-

vented taxation at source.

A signiﬁcant number of Brazilian scholars

have also defended that only technical services with transfer of tech-

nology must be classiﬁed under article 12 as royalties according to the

Protocols aforementioned.

Current case law in Brazil and also the position of preeminent

scholars demonstrates a clear underuse of treaty instruments to tax

cross- border services; this statement merits further analysis.

15. I use the English translation of the Act made by Freitas de

Moraes e Castro & Moraes do Rêgo Monteiro, supra note 7, at 59– 60.

16. Treaties with Germany (later revoked by the German authori-

ties; see Ann M. Miller, Brazil, Germany to Negotiate Tax Treaty, 2015

WoRlD tAx DAily 160- 5 (Aug. 19, 2015) (describing termination effective

January 1, 2006, of Brazil- Germany Tax Treaty)) and Canada in the Copesul

case decided by the Brazilian Superior Court of Justice on May 17, 2012

(Brazil– Case RE 1.161.467 – RS, 17 May 2012 (Decision)) and the Treaty with

Spain in the Iberdrola case decided by the Brazilian Superior Court of Justice

on November 19, 2015 (Brazil– Case 1.272.897 – PE, 19 Nov 2015 (Decision)).

17. A description of other more remote precedents among the same

lines is in Freitas de Moraes e Castro & Moraes do Rêgo Monteiro, supra

note 7, at 62– 63.

18. See id. at 61 n.30.

1014 Florida Tax Review [Vol 22:3

A. Technical Services or Technical Assistance with

Transfer of Technology

The idea according to which only technical services or technical assis-

tance with transfer of technology must be considered royalties, for treaty

purposes, even in those treaties containing the special protocols afore-

mentioned is, in my view, simply wrong. First of all, it should be per-

haps clariﬁed what is meant by technical services or technical assistance

with transfer of technology as the expression is rather imprecise and con-

fusing. For years both the OECD and the U.N. Model Commentaries

have made a distinction between “know- how”— transfer of information

that has not been patented and does not generally fall within other cat-

egories of intellectual property rights or, in short, transfer of

technology

— and pure services— in which one of the parties under-

takes to use the customary skills of his calling to execute work for the

other party.

Therefore, payments are made either as a consideration for

a transfer of information (know- how or transfer of technology) or for

the direct execution of work by the service provider. In this context refer-

ring to technical services with transfer of technology seems fuzzy at

best.

One could think about a laboratory case in which a service pro-

vider by executing his work also transfers information (show- how).

However, in practice, these services would be ancillary to a transfer of

technology/know- how, and it does not seem possible for them to exist

without this transfer. This is in fact acknowledged by both the OECD

and the U.N. Model Commentaries when stating that “in most cases

involving the supply of know- how, there would generally be very little

more which needs to be done by the supplier under the contract other

than to supply existing information or reproduce existing material.”

Be that as it may, there is a widespread consensus on the fact that pay-

ments as a consideration for the transfer of technology (know- how) are

already covered by the reference in article 12(2) of both the OECD and

19. U.N. Model (2017), supra note 1, art. 12, para. 11; OECD, Com-

mentaries, supra note 2, art. 12, para. 11.

20. U.N. Model (2017), supra note 1, art. 12, para. 11.2; OECD,

Commentaries, supra note 2, art. 12, para. 11.2.

21. U.N. Model (2017), supra note 1, art. 12, para. 11.3; OECD,

Commentaries, supra note 2, art. 12, para. 11.3.

2019] Taxing Cross- Border Services 1015

the U.N. Model Tax Conventions

to “payments received as a consid-

eration for (. . .) information concerning industrial, commercial or sci-

entiﬁc experience.”

In this context, the interpretative question may be

what do Brazilian Protocols qualifying income derived from the ren-

dering of technical assistance and technical services as royalties add if

payments as a consideration for transfers of know- how are already cov-

ered by article 12 of the treaties.

Some Brazilian authors have interpreted the expression techni-

cal assistance and technical services as referring exclusively to services

ancillary to transfers of technology,

which implies that pure (non-

ancillary) technical services would be covered by article 7 and remain

untaxed at the source in the absence of a PE. The arguments supporting

that restrictive interpretation of the Protocols revolve around the ancil-

lary nature of the expression “technical assistance”

and certain provi-

sions of Brazilian domestic law requiring mandatory registration for

technical services ancillary to transfers of technology.

Without preju-

dice here to those arguments, there is a clear indication that this restric-

tive approach might be wrong. Both the U.N. and the OECD Model

Commentaries refer to mixed contracts that cover both know- how and

the provision of technical assistance.

According to the Commentary, the appropriate course to take

would be to break down the whole amount of the stipulated consider-

ation and to apply to each part the taxation treatment proper thereto, but

22. All Brazilian treaties contain this language in their respective

article 12(3).

23. U.N. Model (2017), supra note 1, art. 12, para. 11; OECD,

Commentaries, supra note 2, art. 12, para. 11. This identiﬁcation between the

expression “information concerning industrial, commercial or scientiﬁc

experience” and the concept of “know- how” is in the OECD Model Commen-

taries from 1977 even if the very concept of know- how has been evolving ever

since. Adolfo Martín Jiménez, Article 12: Royalties, in gloBAl tAx tReAty

commeNtARieS, at 5.1.5.2.2.1 (2017).

24. Alberto Xavier, O Imposto de Renda na Fonte e os Serviços

Internacionais— Análise de um Caso de Equivocada Interpretação dos arts.

7 e 21 dos Tratados, 49 ReviStA DiAléticA De DiReito tRiBUtáRio 7, 14 – 16

(1999).

25. Id. at 14.

26. Id. at 15.

27. Technical assistance is a contested term, but we think in this

context it actually equals technical services.

1016 Florida Tax Review [Vol 22:3

if one part constitutes by far the principal purpose of the contract and

the other parts are only ancillary, the treatment applicable to the princi-

pal part should be applied to the whole amount of the consideration.

should not be forgotten that these commentaries refer to Model Tax Con-

ventions that do not contain a provision similar to that contained in

Brazilian Protocols.

The question then would be: does it make any

sense to introduce a speciﬁc provision in the Protocols attributing tax-

ing rights to the source state in relation to technical assistance and

technical services (ancillary to transfers of technology) even when the

source State is already entitled to tax these services according to article

12 of the corresponding treaty? Indeed, unless the purpose behind

the Protocols is the elevation from the Commentaries to the very treaty,

the quasi- systematic deviation of Brazilian treaties in relation to tech-

nical services would add nothing relevant.

An interpretation that totally devoids the content of a provision—

such as that restricting the scope of Brazilian Protocols to ancillary

technical assistance and technical services— cannot be correct. Addi-

tionally, the exact wording of Brazilian Protocols should be taken into

account inasmuch as none of them refer to the ancillary character of the

technical assistance/services as a precondition for the attribution of tax-

ing rights to the source State.

The mere fact that technical services

and technical assistance are contemplated in Brazilian treaties as an

expansion of the “normal” content of royalties in article 12 does not

allow or impose the interpreter to attach additional contents to the let-

ter of the treaty in pursuit of a hidden connection with the original con-

cept of royalty.

The legislator— in this case, the negotiators of the treaty— are

free to include whatever contents in the concept of royalty related or not

to the original “industrial property royalties” as described in articles

12(2) and 12(3) of the OECD and U.N. Models. The mistaken position

of this restrictive interpretation becomes more evident if the language

of Brazilian Protocols is contrasted with other expansions of the concept

28. U.N. Model (2017), supra note 1, art. 12, para. 11.6; OECD,

Commentaries, supra note 2, art. 12, para. 11.6.

29. This might be partially inaccurate in relation to the U.N. Model

(2017), supra note 1, counting on a speciﬁc provision on fees for technical

services.

30. Arruda Ferreira, The New Brazilian Position, supra note 11, at

258 (referencing these literal arguments).

2019] Taxing Cross- Border Services 1017

of royalty contained in other treaties. The “so- called” included services

clause of some Indian Treaties is a case in point. By way of example,

article 12(4) of the U.S.- India DTC allows source taxation of “included

services” if such services:

(a) are ancillary and subsidiary to the application or

enjoyment of the right, property or information for which

a payment described in paragraph 3 is received; or

(b) make available technical knowledge, experience,

skill, know- how, or processes, or consist of the devel-

opment and transfer of a technical plan or technical

design.

In these clauses, unlike in the Brazilian Protocols, the ancillary charac-

ter of technical services labelled as royalties appear clearly.

B. Brazilian Case Law and Brazilian Protocols

The reluctance of Brazilian case law to understand Brazilian Protocols

as also covering technical assistance/services in the absence of transfer

of technology or, to be more nuanced, the mechanical application of arti-

cle 7, has hindered the emergence of new interpretative problems

regarding taxation of cross- border services. In my view, these are the

more prominent:

(1) What services can be considered “technical” and taxed at

the source according to the Brazilian Protocols? This prob-

lem, which has not gone unnoticed for some Brazilian authors,

31. Convention Between the Government of the United States of

America and the Government of the Republic of India for the Avoidance

of Double Taxation and the Prevention of Fiscal Evasion with Respect to

Taxes on Income art. 12(4), U.S.-India, U.S.- India, Sept. 12, 1989, Treaty

Doc. 101- 5.

32. A similar argument in relation to similar provisions in other

treaties in: Arruda Ferreira, The New Brazilian Position, supra note 11, at

257– 58.

33. Id. at 258; Freitas de Moraes e Castro & Moraes do Rêgo Mon-

teiro, supra note 7, at 64.

1018 Florida Tax Review [Vol 22:3

may interfere with the normal operation of whatever treaty

provision trying to expand taxing rights of the source State in

relation to cross- border services. In previous publications, I

have advocated for the suppression of any adjective— such

as technical or any other— in provisions trying to expand tax-

ing rights of the source State in relation to cross- border ser-

vices or, given the existence of the expression in existing

treaties like in the Brazilian Protocols, to minimize its rele-

vance assuming that all services might be reputed technical.

This interpretation would avoid recourse to the domestic law

of the Contracting States through article 3(2) of the DTC

—

and therefore litigation and signiﬁcant risk of unrelieved

double taxation

— and at the same time would curb the con-

struction of “international accepted meanings,” which nor-

mally tend to a meaningful reduction of the scope covered by

these provisions.

(2) Declaratory Act 5/2014 concluded that the rendering of

technical services or technical assistance without transfer of

technology should be classiﬁed:

(a) under article 12— in treaties containing special Brazil-

ian Protocols;

34. Báez Moreno, supra note 6, at 298– 303.

35. Proposed by Brazilian authors: Freitas de Moraes e Castro &

Moraes do Rêgo Monteiro, supra note 7, at 64.

36. However it must be warned that the domestic concept of tech-

nical service in Brazil seems rather restrictive seeing it is deﬁned as: “the

provision of service that depends on specialized technical knowledge or the

involves administrative assistance or consultancy, carried out by independent

professionals or employees or by automatic structures with a clear technolog-

ical content.” Normative Ruling 1455/2014. The reference and the translation

is taken from Arruda Ferreira, The New Brazilian Position, supra note 11, at

258. The reference to a clear technological content reduces the scope of cov-

ered services signiﬁcantly.

37. This is what is happening in my view with the interpretation—

contained in the U.N. Model (2017), supra note 1, art. 12A, paras. 61– 104

(showing the concept of Fees for Technical Services in article 12A of the U.N.

Model). For a critical analysis of this interpretation: Báez Moreno, supra note

6, at 300– 03.

2019] Taxing Cross- Border Services 1019

(b) under article 14 (or equivalent in the treaty) except

when item i applies.

The Act suggested a precedence of article 12 over 14 in those treaties

containing special Brazilian Protocols.

However, in a recent deci-

sion, Brazilian Tax Authorities have defended the application of article

14 of the Brazil- Mexico DTC to engineering services provided by a

Mexican Company to a Brazilian Resident. According to the decision

Solução de Consulta nº 135— Cosit of March 28, 2019,

article 14 in

the treaty referring to professional services or other independent activ-

ities should be considered lex specialis in relation to the habitual Pro-

tocol to article 12.

Even if the fees were ﬁnally not subject to source taxation—

due to peculiarities of Brazilian law in relation to the payer— this inter-

pretation may have far- reaching implications as most Brazilian Treaties

attribute unlimited taxing rights to the source State in relation to Inde-

pendent Personal Services if the remuneration for such services or activ-

ities is paid by a resident of the source State or the income is borne by

a PE or ﬁxed base situated in that State normally irrespective of the legal

nature (individual, partnership, company) of the service provider. Obvi-

ously, the qualiﬁcation under one or the other distributive rule might

38. That is, in my view, the literal content of the Act and also the

interpretation of Brazilian authors: Arruda Ferreira, The New Brazilian Posi-

tion, supra note 11, at 256. Freitas de Moraes e Castro & Moraes do Rêgo

Monteiro, supra note 7, at 64. Nevertheless, as regarding treaties with Spain

(concluded 14 November 1974) and Israel (concluded 12 December 2002),

Ato Declaratório Interpretativo SRF nº4, of March 17, 2006, http:// normas

. receita . fazenda . gov . br / sijut2consulta / link . action ? visao=anotado

& idAto =5583, suggests both impose the application of article 14 to technical

services related to the technical qualiﬁcation of a person or group of persons.

See also Convention Between the Federative Republic of Brazil and the Span-

ish State for the Avoidance of Double Taxation and the Prevention of Fiscal

Evasion with Respect to Taxes on Income, Braz.- Spain, Nov. 14, 1974, 1031

U.N.T.S. 7; Convention Between the Government of the Federative Republic

of Brazil and the Government of the State of Israel for the Avoidance of Dou-

ble Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on

Income, Braz.- Isr., Dec. 12, 2002, Tax Analysts Doc. 2005- 15217.

39. Assunto: Imposto Sobre a Renda Retido na Fonte— IRRF, ReceitA

feD. (Mar. 28, 2019), http:// normas . receita . fazenda . gov . br / sijut2consulta / anexo

Outros . action ? idArquivoBinario=51841.

1020 Florida Tax Review [Vol 22:3

not be trivial, due to different tax rate limits under both articles 12 and

14 or methods of taxation (gross vs. net basis).

In any event the respec-

tive scopes of articles 12 and 14 (i.e., Protocols regarding technical ser-

vices) depend to a large extent on the very interpretation of the word

technical accompanying the substantive services in Brazilian treaties.

Indeed, a restrictive interpretation of the term technical would make

clear that article 14 cannot be lex specialis in relation to the Protocols;

however, a broad interpretation of the expression technical services— as

I have always advocated— could change this relation of lex generalis and

specialis in favor of the application of article 14. The problem is that

whatever interpretation leads to the systematic non- application of the

contending distributive rule something that seems to make little sense.

In any case, the experience in other countries with similar treaty situa-

tion shows a rather erratic qualiﬁcation of services under articles 12 or

14 of the corresponding treaty.

C. Lessons

In my opinion there are two important lessons to be learned from the

Brazilian experience during the last 20 years in relation to cross- border

taxation of services:

(1) Brazil or any other (developing) country that disagrees

with the current “OECD status quo” on taxation of cross-

border services must carefully delineate the “non- Model-

patterned” provisions to be incorporated to its treaty network.

It is important to know and properly interpret the deviations of

the country´s treaty network from the OECD/U.N. Model Tax

Conventions; and

(2) Even if in my opinion those Brazilian Treaties containing

expansions of the royalty concept in their Protocols allow source

taxation of pure technical services, this could be clariﬁed in

future treaty negotiations decoupling (technical) services from

40. However differences in method might be immaterial according

to Brazilian Law: Sergio André Rocha, Brazil, 97A cAhieRS De DRoit fiScAl

iNt’l 160 (2012).

41. For India, see D.P. Sengupta, Article 14: Independent Personal

Services, in gloBAl tAx tReAty commeNtARieS, at 6.1.4.4 (2017).

2019] Taxing Cross- Border Services 1021

royalties and, incidentally, clearing up the relationship between

article 14 and the distributive rule referred to technical ser-

vices and the very scope of covered services. In fact, Brazilian

negotiators seem to have seriously taken account of these

necessities by incorporating in new or renegotiated treaties

provisions regarding services

along the lines of the new arti-

cle 12A of U.N. Model Tax Convention on fees for technical

services.

These new provisions solve the above- mentioned

problems with the exception of the scope of services cov-

ered, which is in my view the major technical difﬁculty in

article 12A of the U.N. Model Tax Convention.

iii. The argenTinian experienCe: uninTelligiBle domesTiC

sourCing rules or “your TreaTies CounT for noThing

if your domesTiC law is noT in order”

Concerning cross- border services, the Argentinian treaty network is

much less uniform than the Brazilian one. Even though most Argen-

tinian DTCs expand the modelled concept of royalties to also embrace

rendering of technical assistance, the disparities between speciﬁc treaty

language are relevant:

42. Sing.- Braz. Treaty, supra note 13, art. 13; Switz.- Braz. Treaty,

supra note 13, art. 13; Convenção Entre a República Federativa do Brasil e a

República Oriental Douruguai para Eliminar a Dupla Tributação em Relação

aos Tributos Sobre Arenda e Sobre o Capital e Prevenir a Evasão e a Elisão

Fiscais art. 13, Uru.- Braz., June 7, 2019, Tax Analysts Doc. 2019- 29309. The

2017 Protocol to the DTC between Brazil and Argentina (concluded 21

July 2017) does not incorporate a new provision on technical services. Proto-

col Amending the Convention Between the Argentine Republic and the Fed-

erative Republic of Brazil for the Avoidance of Double Taxation and the

Prevention of Fiscal Evasion with Respect to Taxes on Income, Arg.- Braz.,

July 21, 2017, Tax Analysts Doc. 2017- 4658 [hereinafter Arg.- Braz. Protocol

Amendment]. However, point 7.b of the Protocol clearly unites technical ser-

vices and royalties whereas point 9.b resolves the potential conﬂicts between

article 14 and taxation of technical services under article 12.

43. U.N. Model (2017), supra note 1, art. 12A.

44. See Báez Moreno, supra note 6, at 298– 303.

1022 Florida Tax Review [Vol 22:3

(1) Some of these treaties do not deﬁne what is meant by tech-

nical assistance

but, in other cases, the concept is described in

45. This is the case of the treaties between Argentina and Austra-

lia, Belgium, Canada, China, Denmark, and Finland (referring to technical,

scientiﬁc, administrative or similar assistance). Agreement Between the

Government of Australia and the Government of the Argentine Republic for

the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with

Respect to Taxes on Income art. 12, Austl.- Arg., Aug. 27, 1999, Tax Analysts

Doc. 1999- 31445 [hereinafter Austl.- Arg. DTC]; Convention Between the

Argentine Republic and the Kingdom of Belgium for the Avoidance of Dou-

ble Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on

Income and on Capital art. 12, Arg.- Belg., June 12, 1996, Tax Analysts Doc.

1999- 3944; Convention Between Canada and the Argentine Republic for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with

Respect to Taxes on Income and Capital art. 12 & protocol, Can.- Arg.,

Apr. 29, 1993, Tax Analysts Doc. 93- 31570; Agreement Between the Argen-

tine Republic and the People’s Republic of China for the Elimination of Dou-

ble Taxation with Respect to Taxes on Income and on Capital and the

Prevention of Tax Evasion and Avoidance art. 12 & protocol, Arg.- China,

Dec. 2, 2018, Tax Analysts Doc. 2018- 48067; Convention Between the Gov-

ernment of the Kingdom of Denmark and the Government of the Republic of

Argentina for the Avoidance of Double Taxation and the Prevention of Fiscal

Evasion with Respect to Taxes on Income and on Capital art. 12 & protocol,

Den.- Arg., Dec. 12, 1995, Tax Analysts Doc. 96- 31248; Agreement Between

the Republic of Finland and the Argentine Republic for the Avoidance of

Double Taxation with Respect to Taxes on Income and on Capital art. 12,

Fin.- Arg., Dec. 13, 1994, Tax Analysts Doc. 96- 2267 [hereinafter Fin.- Arg.

DTC].

See also treaties between Argentina and the Netherlands, Norway,

Qatar, Russia, Sweden, Switzerland, Turkey, United Arab Emirates, and the

United Kingdom. Convention Between the Kingdom of the Netherlands and

the Argentine Republic for the Avoidance of Double Taxation and the Preven-

tion of Fiscal Evasion with Respect to Taxes on Income and on Capital art. 13

& protocol, Neth.- Arg., Dec. 27, 1996, Tax Analysts Doc. 98- 4044; Conven-

tion Between the Kingdom of Norway and the Republic of Argentina for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with

Respect to Taxes on Income and Capital, art. 12 & protocol, Nor.- Arg., Oct. 8,

1997, Tax Analysts Doc. 98- 4932 [hereinafter Nor.- Arg. DTC]; Agreement

Between the Government of the State of Qatar and the Government of the

Argentine Republic for the Avoidance of Double Taxation and the Prevention

of Fiscal Evasion with Respect to Taxes on Income and on Capital art. 12, art.

14 & protocol, Qatar- Arg., Apr. 19, 2018, Tax Analysts Doc. 2018- 39354

2019] Taxing Cross- Border Services 1023

the Protocols referring to the “rendering of customized ser-

vices involving the application by the provider of any non-

patentable specialized knowledge, ability or experience, and

not necessarily requiring the transmission of such knowledge

to the client.”

[hereinafter Qatar- Arg. DTC]; Convention Between the Government of the

Argentine Republic and the Government of the Russian Federation for the

Avoidance of Double Taxation with Respect to Taxes on Income and on Cap-

ital ar. 12, Arg.- Russ., Oct. 10, 2001, Tax Analysts Doc. 2007- 2310; Conven-

tion Between the Kingdom of Sweden and the Argentine Republic for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with

Respect to Taxes on Income, art. 12 & art. 22, May 31, 1995, Tax Analysts

Doc. 95- 30592; Convention Between the Swiss Confederation and the Argen-

tine Republic for the Avoidance of Double Taxation with Respect to Taxes on

Income and on Capital art. 12, Switz.- Arg., Mar. 20, 2014, Tax Analysts Doc.

2014- 6762; Convention Between the Argentine Republic and the Republic of

Turkey for the Elimination of Double Taxation with Respect to Taxes on

Income and the Prevention of Tax Evasion and Avoidance art. 12 & art. 14,

Arg.- Turk., Dec. 1, 2018, Tax Analysts Doc. 2019- 5286; Convention Between

the Government of the Argentine Republic and the Government of the United

Arab Emirates for the Avoidance of Double Taxation and the Prevention of

Fiscal Evasion with Respect to Taxes on Income and on Capital art. 12 & art.

14, Arg.- U.A.E., Nov. 3, 2016, Tax Analysts Doc. 2016- 23178; Convention

Between the Government of the United Kingdom of Great Britain and North-

ern Ireland and the Government of the Republic of Argentina for the Avoid-

ance of Double Taxation and the Prevention of Fiscal Evasion with Respect to

Taxes on Income and Capital art. 12 & protocol, U.K.- Arg., Jan. 3, 1996, Tax

Analysts Doc. 96- 31575.

46. This is the case of the treaties between Argentina and Chile

(signed 15 May 2015); Argentina and Luxembourg (concluded 13 April 2019,

but not yet ratiﬁed); and Argentina and Mexico (concluded 4 November 2015).

Convenio Entre la República Argentina y la República de Chile para Eliminar

la Doble Imposición en Relación a los Impuestos Sobre la Renta y Sobre el

Patrimonio y para Prevenir la Evasión y Elusión Fiscal protocol 13(c), Arg.-

Chile, May 15, 2015, Tax Analysts Doc. 2015- 11910; Convention Between the

Argentine Republic and the Grand Duchy of Luxembourg for the Elimination

of Double Taxation with Respect to Taxes on Income and on Capital and the

Prevention of Tax Evasion and Avoidance protocol 4(c), Arg.- Lux., Apr. 13,

2019, Tax Analysts Doc. 2019- 17002; Acuerdo Entre los Estados Unidos Mex-

icanos y la República Argentina para Evitar la Doble Imposición y Prevenir la

Evasión Fiscal con Respecto a los Impuestos Sobre la Renta y Sobre el

1024 Florida Tax Review [Vol 22:3

(2) Some treaties refer explicitly to technical services;

(3) Some treaties refer to service- related concepts which,

however, have never appeared in the Models;

(4) The treaty not yet in force with Qatar establishes in its Pro-

tocol 4(c) that the competent authorities shall determine, on

a case by case basis, through a mutual agreement procedure

Patrimonio protocol 7(c), Mex.- Arg., Nov. 4, 2015, Tax Analysts Doc. 2015-

26646.

47. DTC between Argentina and Brazil and between Argentina

and Finland. Convention Between the Federative Republic of Brazil and the

Argentine Republic for the Avoidance of Double Taxation and the Prevention

of Fiscal Evasion with Respect to Taxes on Income, Braz.- Arg., May 17, 1980,

1300 U.N.T.S. 33, as amended by Arg.- Braz. Protocol Amendment, supra

note 42; Fin.- Arg. DTC, supra note 45, art. 12.

48. Such as the concept of survey or research works of a scientiﬁc

or technical nature concerning industrial, commercial or administrative

methods or processes (treaty between Argentina and France, concluded 4

April 1979 and amended by Protocol of 15 August 2001, which entered into

force on 1 October 2007), studies or research of a scientiﬁc or technical nature

and concerning industrial, commercial or administrative methods or pro-

cesses (DTC between Argentina and Italy, concluded 15 November 1979),

and technical assistance services (DTC between Argentina and Spain, con-

cluded 11 March 2013). Convention Between the Government of the French

Republic and the Government of the Argentine Republic for the Avoidance of

Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes

on Income and on Capital art. 12, Fr.- Arg., Apr. 4, 1979, 1264 U.N.T.S. 3

[hereinafter Fr.- Arg. DTC], as amended by Protocol to the Convention

Entered into on April 4, 1979 Between the Government of the Argentine

Republic and the Government of the French Republic for the Avoidance of

Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes

on Income and on Capital, Arg.- Fr., Aug. 15, 2001, Tax Analysts Doc. 2003-

11878; Convention Between the Argentine Republic and the Italian Republic

for the Avoidance of Double Taxation with Respect to Taxes on Income and

on Capital and for the Prevention of Fiscal Evasion art. 12, Arg.- It., Nov. 15,

1979, Tax Analysts Doc. 97- 28609- I [hereinafter Arg.- It. DTC]; Convenio

Entre el Reino de España y la República Argentina para Evitar la Doble

Imposición y Prevenir la Evasión Fiscal en Materia de Impuestos Sobre la

Renta y Sobre el Patrimonio art. 12 & protocol 4(c), Spain- Arg., Mar. 11,

2013, Tax Analysts Doc. 2013- 6458.

2019] Taxing Cross- Border Services 1025

those cases that could be considered as technical assistance;

and

(5) Finally, some treaties do not contain a single speciﬁc refer-

ence to cross- border services.

While one might think that this variety of treaty language has gener-

ated signiﬁcant litigation on the application of Argentinian DTCs to

cross- border services, the truth is that the number of Court decisions in

Argentina dealing speciﬁcally with tax treaty issues of cross- border

services is very small.

There is an easy explanation for this: the dis-

cussion surrounding domestic Argentinian source rules on services has

overshadowed any other discussion or conﬂict on taxation of cross-

border services. Indeed, Argentinian sourcing rules eventually applica-

ble to cross- border services are extraordinarily vague.

The general sourcing rule in Argentina, contained in article 5

of the Income Tax Act, Ley del Impuesto a las Ganancias (LIG),

deems

as Argentinian source income that arising from “assets situated, placed

or economically used in Argentina, from performance in Argentina of

any activity likely to produce beneﬁts or from events taking place in

49. Qatar- Arg. DTC, supra note 45, protocol 4(c).

50. Such as the DTCs between Argentina and Germany (concluded

13 July 1978 and amended by a Protocol signed on 16 September 1996 which

entered into force on 30 June 2001) and Argentina and Japan (signed 27

June 2019 not yet in force). Convention Between the Federal Republic of Ger-

many and the Argentine Republic for the Avoidance of Double Taxation with

Respect to Taxes on Income and Property, Ger.- Arg., July 13, 1978, 1246

U.N.T.S. 241, as amended by Protocol to the Agreement Dated July 13, 1978

Between the Republic of Argentina and the Federal Republic of Germany for

the Avoidance of Double Taxation with Respect to Taxes on Income and on

Capital, Arg.- Ger., Sept. 16, 1996, Tax Analysts Doc. 98- 8917; Convention

Between Japan and the Argentine Republic for the Elimination of Double

Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion

and Avoidance, Jap.- Arg., June 27, 2019, Tax Analysts Doc. 2019- 25281.

51. There are however some decisions to which we will make a

short reference hereinafter.

52. Ley de Impuesto a las Ganancias, iNfoleg, http:// servicios

. infoleg . gob . ar / infolegInternet / anexos / 40000 - 44999 / 44911 / texact . htm (last

visited Oct. 27, 2020) (texto ordenado por Decreto 649/97 (B.O. 06/08/97),

Anexo I, con las modiﬁcaciones posteriors).

1026 Florida Tax Review [Vol 22:3

Argentina.”

Apart from that, article 12 of the LIG deems as Argentin-

ian source income that arising from technical, ﬁnancial, or whatever

assistance rendered from outside Argentina. All the difﬁculties involved

in applying these rules have emerged in the so called Amadeus Saga, a

series of cases in which Amadeus Marketing SA— a company resident

in Spain— entered some complex transactions with Argentinian airline

operators, which were allowed to charge their travelling information

(ﬂights, fares, or seats) in the database of Amadeus in exchange for the

payment of a fee accrued every time Amadeus processed a reservation

for the corresponding Argentinian carrier.

In relation to these “simple” facts, there have been as many dif-

ferent solutions as tax and ordinary courts have expressed their views

in Argentina.

Most of these decisions are very confusing but in any

event the most hotly disputed issues were:

(1) Whether remotely performed services could be sourced in

Argentina according to the general sourcing rule contained in

article 5 of the LIG. Some of the abovementioned decisions,

have interpreted article 5 to also cover services not physically

53. I partially take this translation from Eduardo O. Meloni, Ta xa-

tion of Royalties Under Treaty Law: How Far Can a Source State Go?, 64

BUll. iNt’l tAx’N, no. 6, 2010, ¶ 3.3 (2010).

54. Decision of the Tribunal Fiscal de la Nación, sala D, May 12,

2004 (case Aerolíneas Argentinas SA) [hereinafter Tax Court Decision,

Aerolíneas Argentinas]; Decision of the Cámara Nacional de Apelaciones,

sala I, Feb. 5, 2008 (case Aerolíneas Argentinas SA) [hereinafter Appeals

Decision, Aerolíneas Argentinas]; Decision of the Tribunal Fiscal de la

Nación, Sala A, Feb. 6, 2007 (case Austral Líneas Aéreas Cielos del Sur SA)

[hereinafter Tax Court Decision, Austral]; Decision of the Cámara Nacional

de Apelaciones, Sala V, June 2, 2009 (case Austral Líneas Aéreas Cielos del

Sur SA) [hereinafter Appeals Decision, Austral]; Decision of the Tribunal

Fiscal de la Nación, Sala C, Apr. 14, 2010 (case Líneas Aéreas Privadas

Argentina SA (LAPA)) [hereinafter Tax Court Decision, LAPA]; Decision of

the Cámara Nacional de Apelaciones, Sala III, Sept. 8, 2011 (case Líneas

Aéreas Privadas Argentina SA (LAPA)) [hereinafter Appeals Decision,

LAPA]. For an overview of these cases, see Los Pagos Realizados en Con-

cepto de Uso de Sistemas Automatizados de Reservas a Beneﬁciarios del

Exterior, el cRoNiStA (Mar. 12, 2012), https:// www . cronista . com / ﬁscal / Los

- pagos - realizados - en - concepto - de - uso - de - sistemasautomatizados - de

- reservas - a - beneﬁciarios - del - exterior - 20120312 - 0013 . html.

2019] Taxing Cross- Border Services 1027

performed in Argentina but economically used in that country.

This would in fact extend the sourcing rule, which merely

refers to “performance in Argentina of any activity likely to

produce beneﬁts” covering thereby only services physically

performed in Argentinian territory. However, it is relatively

clear that article 5 of the LIG only refers to assets economically

used in Argentina— not services— and there is therefore no

support for this interpretation in Argentinian Law.

(2) Whether remotely performed services could be sourced in

Argentina according to the special sourcing rule contained in

article 12 of the LIG. Some of the abovementioned decisions

considered that the services rendered by Amadeus Marketing

SA to the Argentinian airline operators could be considered

technical assistance and therefore sourced in Argentina even if

provided remotely.

Whilst extension of article 5 to also cover

remotely provided services was easy to be denied, the problem

when applying article 12 of the LIG is that technical, ﬁnancial,

or whatever assistance is not deﬁned in Argentinian tax law.

This lack of deﬁnition has resulted in a wide array of interpre-

tations ranging from the identiﬁcation of technical assistance

55. As suggested in the Appeals Decision, Aerolíneas Argentinas,

supra note 54.

56. As suggested by Meloni, supra note 53, at 316– 17; Miguel A.M.

Tesón & Valeria Estathio, Un nuevo pronunciamiento sobre el Sistema Ama-

deus. El fallo ´Austral Líneas Aéreas Cielos del Sur SA´ (C. Nac. Cont. Adm.

Fed, Sala 5°, 2/6/2009, ReviStA el DeRecho fiScAl, Sept./Oct. 2009, at 65

(Arg.); Axel A. Verstraeten, Argentina: Source Country Approach: Article 7

Versus Article 12, in tAx tReAty cASe lAW ARoUND the gloBe 305, 309

(Eric C.C.M. Kemmeren et al. eds., 2016).

57. As suggested in Tax Court Decision, Aerolíneas Argentinas,

supra note 54; Appeals Decision, Austral, supra note 54; Appeals Decision,

LAPA, supra note 54.

58. cARloS m. giUliANi foNRoUge & SUSANA cAmilA NAvARRiNe,

impUeSto A lAS gANANciAS: ANáliSiS De DoctRiNA y JURiSpRUDeNciA (4th ed.

2007). Some Argentinian scholars and some abovementioned decisions of tax

authorities and courts have made a reference to an administrative resolution

adjudicated by the Instituto Nacional de Tecnología Industrial deﬁning tech-

nical assistance. In my opinion the deﬁnition is too broad to derive speciﬁc

conclusions from it.

1028 Florida Tax Review [Vol 22:3

with pure technical services

to the requirement of the transfer

of some type of knowledge or advice

to, ﬁnally, a more or less

clear identiﬁcation with the concept of know- how.

Of course

just under the ﬁrst interpretation the fee paid to Amadeus could

be sourced in Argentina. For various reasons the Argentinian

Supreme Court has not had the chance to make a decision in a

case of the Amadeus Saga.

The attention paid by Argentinian scholars and case law to the problem

of domestic sourcing rules has hampered an in- depth analysis of other

problems regarding cross- border services, namely those referring to

their tax treaty treatment:

(1) The vast majority of Argentinian DTCs refer, under article

12, to technical assistance. In some of these treaties, the con-

cept is deﬁned in the Protocol, making it clear that the term

covers whatever service— “services involving the application

by the provider of any non- patentable specialized knowledge,

ability or experience”— not requiring the transmission of such

knowledge to the client. In my view these rules have the virtue

of, on the one hand, clarifying that technical assistance goes

beyond transfer of know- how or even services ancillary to this

transfer and, on the other side, not falling into the semantic trap

of the terms “technical service” for the Brazilian experience.

However, the majority of Argentinian DTCs expanding the

concept of royalties to also cover the rendering of technical

assistance do not deﬁne this concept.

The problem is, also at

a treaty level, that the concept of technical assistance proves

also extremely confusing. By all means, there are many who

simply identify technical assistance and transfer of know- how

or services ancillary to the transfer of technology at least at a

59. In a more or less precise way, those decisions mentioned supra

note 58.

60. Meloni, supra note 53, at 318.

61. Tax Court Decision, Austral, supra note 54; Tax Court Deci-

sion, LAPA, supra note 54.

62. See supra note 45.

2019] Taxing Cross- Border Services 1029

pure treaty level.

Unlike in Brazilian treaties— which refer

to technical assistance and technical services— under these

Argentinian Treaties this would mean exclusive taxation in the

residence State of whatever services rendered in Argentina

without a PE.

Moreover, this interpretation is far from unanimous and the

very Commentaries of both the OECD and the U.N. Model Tax

Conventions explicitly indicate that payments for pure techni-

cal assistance should not be considered to be received as a con-

sideration for the provision of know- how but rather for the

provision of services.

In this context, article 3(2) of these

treaties and the search for a domestic law meaning does not help

either then, as stated before, the vagueness of the concept is the

same or worse in Argentinian domestic law. However, in my

view this is one of those (rare) cases in which, according to

article 3(2) of the corresponding treaty, the context requires

not to resort to the domestic law of the Contracting State apply-

ing the treaty.

Indeed, some of these treaties clarify in their context that the

expression technical assistance actually refers to (technical)

services and not to the transfer of know- how or to services

ancillary to that transfer. For example, in the treaty between

Argentina and Australia article 12(3) of the treaty indicates that

the term royalties covers “the supply of scientiﬁc, technical, or

industrial, knowledge or information” (i.e., know- how); “the

supply of any assistance that is ancillary and subsidiary to, and

is furnished as a means of enabling the application or enjoy-

ment of . . . any such knowledge or information as is men-

tioned in subparagraph (c)” (i.e., services ancillary and

subsidiary to the transfer of know- how); and “the rendering of

any technical assistance not included in subparagraph 3(d)”

(i.e., not included under services ancillary and subsidiary to

the transfer of know- how).

In this context it is difﬁcult to

63. Martín Jiménez, supra note 23, at 5.1.5.1. & 5.1.5.2.2.5 (explain-

ing the history).

64. U.N. Model (2017), supra note 1, art. 12 para. 11.4; OECD,

Commentaries, supra note 2, art. 12, para 11.4. Nevertheless none of the

Commentaries deﬁne pure technical assistance or even technical assistance.

65. Austl.- Arg. DTC, supra note 45, art. 12(3).

1030 Florida Tax Review [Vol 22:3

claim that the term technical assistance refers just to know-

how and services ancillary and subsidiary to the transfer of

know- how.

Other treaties, despite using the expression “technical

assistance” without deﬁning it, clarify in other provisions of

the very treaty the intention to cover also pure technical ser-

vices under the former expression; this is the case for instance

of the treaty between Argentina and Norway where article

14(1) of the treaty refers to “professional services or other

activities of an independent character performed in the other

Contracting State excluding technical services as dealt with in

Article 12.”

Finally, other treaties seem to have oddly merged

the concepts of technical assistance and technical services

referring to the rendering of technical assistance services (arti-

cle 12(3) of the DTC between Argentina and Spain). In addition

to the logical argument already exposed in relation to Brazil-

ian treaties— it makes no sense to deviate from the Models to

cover the tax that you were already entitled to tax under the

Model— there are good contextual reasons to defend that in

these treaties the expression technical assistance goes beyond

know- how and services ancillary and subsidiary to the transfer

of know- how.

Of course, the interpretation problem persists in those trea-

ties, which do not contain a deﬁnition of technical assistance

or enough context to deduce the meaning of this expression.

(2) Two relevant Argentinian treaties extend the concept of

royalty to also cover payments of any kind received as consid-

eration “for studies or research of a scientiﬁc or technical

nature concerning industrial, commercial or administrative

methods or processes”

or payments “for studies or research

of a scientiﬁc or technical nature and concerning industrial,

commercial or administrative methods or processes.”

In the

66. Nor.- Arg. DTC, supra note 45, art. 14(1). Article 12(3) of the

treaty refers to the rendering of technical assistance so it might be easily

deduced that the negotiators believed the expressions technical assistance and

technical services to be equivalent.

67. Fr.- Arg. DTC, supra note 48, art. 12(3)(c).

68. Arg.- It. DTC, supra note 48, art. 12(3).

2019] Taxing Cross- Border Services 1031

absence of a speciﬁc deﬁnition of this concept in the treaties it

becomes difﬁcult to understand the meaning of this extension

and whether or not it covers pure services not ancillary to the

transfer of know- how.

The reference to research, studies, or surveys could be seen

as a synonym for know- how inasmuch as the researcher merely

imparts his special knowledge without executing work him-

self for the other party. However, it must also be acknowledged

that this interpretation might make little sense from a strict

contextual point- of- view as the provisions in both treaties refer

separately to “information concerning industrial, commercial

or scientiﬁc experience,” an expression which— as we have

already said— is usually identiﬁed with the transfer of know-

how. Again, the treaty would be including futile language.

In my opinion, there is no satisfactory interpretation for this

expression in the referred treaties.

(3) Some of the interpretative problems previously spotted

under Brazilian treaties could also appear in the Argentinian

tax treaty network such as the very concept of “technical” ser-

vices

or the relationship between articles 12 and 14 regard-

ing cross- border services.

I also believe, there are two important lessons to be learned from the

Argentinian experience during the last 20 years in relation to cross-

border taxation of services:

(1) It makes no sense for a jurisdiction trying to extend its tax-

ing powers regarding cross- border services to negotiate treaty

provisions deviating from the current OECD standards (i.e.,

69. In fact, even if both treaties are relatively old— both were con-

cluded in 1979— the OECD Commentaries, supra note 2, at 222– 23, identify

the expression information concerning industrial, commercial or scientiﬁc

experience with the transfer of know- how since 1977. So the negotiators must

have been aware of this, arguably attributing a different and wider meaning to

the expression “for studies or research of a scientiﬁc or technical nature con-

cerning industrial, commercial or administrative methods or processes.”

70. A concept also used in some Argentinian treaties. See supra

note 47.

1032 Florida Tax Review [Vol 22:3

attributing whatever taxing rights to the source State in the

absence of a PE). If, on the other hand, domestic sourcing rules

on these services are not clear, there are, of course, many ways

to design these rules as shown by the variety of domestic

source approaches regarding cross- border services.

However, particularly for developing countries trying to

expand taxing rights on cross- border services, simplicity

should act as a guiding principle. For this purpose, domestic

sourcing rules should avoid, just like at a treaty level, any

adjective qualifying services covered. Besides that, despite

the criticism made by several authors,

these rules should

ideally source cross- border services if the corresponding pay-

ment is made by a resident or borne by a PE situated in the

jurisdiction.

(2) A jurisdiction, like Argentina, trying to expand its taxing

rights on cross- border services should avoid confusing and non-

uniform language at a treaty level.

Unlike Brazil, Argentina does not seem to use the new article

12A of the U.N. Model Tax Convention as a starting point in its new

treaties. Instead, in those treaties negotiated since 2015, Argentina stub-

bornly clings to the untelling concept of technical assistance seeking,

in the best case, to unravel ambiguities by means of non- uniform deﬁ-

nitions in the corresponding Protocols.

This approach predicts future

controversies regarding taxation of cross- border services; in fact, it

should not be forgotten that article 12A of the U.N. Model was essen-

tially incorporated into the Model in order to avoid misguiding rules

on cross- border services in treaties.

71. Pickering, supra note 4, at 30– 31.

72. Criticism we have rebutted in previous publications: Andrés

Báez Moreno, Debate: A Note on Some Radical Alternatives to the Existing

International Corporate Tax and Their Implications for the Digital(ized)

Economy, 46 iNteRtAx 560, 564 (2018).

73. See supra note 46.

74. Jan de Goede, The Treatment of Services in Tax Treaties 2

(IBFD White Papers Series, 2013), https:// www . ibfd . org / sites / ibfd . org / ﬁles

/ content / pdf / White%20Paper_Treatment_of_Services_in_Tax_Treaties

_v050312 . pdf.

2019] Taxing Cross- Border Services 1033

iv. ConClusions and epilogue

This contribution would not really require a speciﬁc paragraph with con-

clusions. Indeed, lessons learnt from the Brazilian and Argentinian

experiences could serve as such. In essence, (developing) countries look-

ing for an extension of their taxing powers on cross- border services

beyond the current framework in the international tax regime (PE

principle) should allow themselves to be led by simplicity both when

designing domestic source rules and negotiating treaty provisions.

However, beyond these basics there is another, perhaps more far-

reaching, advantage of an orderly taxation of cross- border services.

Indeed, even when the OECD/G20 Inclusive Framework on BEPS seems

determined to take different approaches,

it should not be forgotten that

a withholding tax on services could be a simple and effective way to

address the tax challenges of the digital economy.

It goes without say-

ing that simple, predictable, and neutral domestic and treaty rules are

the pre- condition upon which this tax liability must be based.

75. See OECD, Programme of Work to Develop a Consensus Solu-

tion to the Tax Challenges Arising from the Digitalisation of the Economy,

OECD/G20 Inclusive Framework on BEPS 40 (2019), https:// www . oecd . org

/ tax / beps / programme - of - work - to - develop - a - consensus - solution - to - the - tax

- challenges - arising - from - the - digitalisation - of - the - economy . pdf.

76. As we have tried to demonstrate in previous publications: Báez

Moreno, supra note 6, at 300– 03; Andrés Báez Moreno & Yariv Brauner, Tax

Policy for the Digitalized Economy Under Benjamin Franklin’s Rule for

Decision- Making, in tAx AND the DigitAl ecoNomy: chAlleNgeS AND pRopoS-

AlS foR RefoRm 67 (Werner Haslehner et al. eds., 2019); Yariv Brauner &

Andrés Báez Moreno, Withholding Taxes in the Service of BEPS Action 1:

Address the Tax Challenges of the Digital Economy 33 (IBFD White Papers

Series, 2015), https:// www . ibfd . org / sites / ibfd . org / ﬁles / content / WithholdingT

axesintheServiceofBEPSAction1 - whitepaper . pdf.