International Tax

Article 21 | Taxation of Other Income


During our journey of consultation, we sometimes come across the income, which does not precisely fit into any of the Articles mentioned in the OECD model convention. Some revenues have design, structure, and color to be the income other than the specifically defined income of the Articles.  In such cases, who has the right to tax the income? State of Source? State of Residence? Or will the taxpayer bear the brunt of double taxation just because the authorities could not conjure the comprehensive list of incomes?

Tax on Other Income | Article 21

To cover the taxation of such income, which is not covered by a specific provision, Article 20 is formed.

 It includes taxation of income of:

  1. Revenues not covered under the class of income,
  2. The income which is not specified in other Articles,
  3. and the income arising in the third State.

So this becomes a fascinating and vital Article in the OECD Model Tax Convention.

Who has the right to tax according to Article 20?

Article 20(1) of the OECD model tax convention provides the exclusive right to tax the income falling in this category, to the State of residence.

The above Article is applicable when the State of residence does not execute its right to tax.


Jeffery spends almost six months in State A and State B. He has home in both states. He is an artist and often supplies Artwork to the exhibitor in State C. He also earns revenues from varied sources in State A, State B and State C (income will be covered under Article 20). Assuming all the three States have adopted the OECD Model Tax Convention, which State has the right to tax the income?

The first step, in such a scenario, will be to identify the State of Residence of Jeffery based upon the tiebreaker test mentioned under Article 4.

Now let us say Jeffery is determined as a resident of State A as per Article 4. Then State A has the right to tax his comprehensive income. That is, income earned in the State B and State C will also be taxed in the State A.

What if State A does not apply the tax income of individuals?

Even then, State B and State C do not have the right to tax the income according to Article 20(1).

Any exceptions to Article 20(1)?

The above-mentioned provisions of taxation of income of Article 20(1) are not applicable when the transaction involves a Permanent establishment.

When the income is earned by the permanent establishment (received from the third State) in a State, it will be taxable in the State where permanent establishment exists. But there exists an exception to this too. It is reiterated that the income earned by the permanent establishment concerning the immovable property, will primarily be taxable by the State of Source for avoiding conflict to Article 6(4).


AB Inc of State A has the PE in State B. During the year, the PE earned income frbestom State C in the form of gains from immovable property owned by the PE in the State C and also other revenues. Assuming State A and State B have adopted the OECD Model Tax Convention, which State has the right to tax the income?

State B has the right to tax the other income earned by PE in State C, but the revenue from the immovable property will be levied to tax by the State of Situs, i.e., State C.


Mayo Inc and Sauce Inc have a long-standing relationship. Both incorporated in the same year and tax resident of State A. Sauce Inc has a PE in State B, where it undertakes minor operations. Mayo Inc gave a significant order to PE of Sauce Inc. Assuming State A and State B have adopted the OECD Model Tax Convention, where will the revenue of the law be taxed in State A or State B?

According to Article 20(2), the income of the PE of Sauce Inc will be taxable in State B.

By Taxbeech

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