Article 1 of the OECD Model Tax treaty states the persons who are covered under the convention. This forms part of scope of the treaty.

Article 1 of the OECD Model Convention is as follow:
PERSONS COVERED
1. This Convention shall apply to persons who are residents of one
or both of the Contracting States.2. For the purposes of this Convention, income derived by or
through an entity or arrangement that is treated as wholly or partly
fiscally transparent under the tax law of either Contracting State shall
be considered to be income of a resident of a Contracting State but
only to the extent that the income is treated, for purposes of taxation
by that State, as the income of a resident of that State.3. This Convention shall not affect the taxation, by a Contracting
Article 1 of the OECD Model convention
State, of its residents except with respect to the bene%ts granted under
[paragraph 3 of Article 7], paragraph 2 of Article 9 and Articles 19, 20,
23 A [23 B], 24 and 25 A [25 B] and 28.
Let us approach each paragraph at a time.
Paragraph 1 of Article 1 of OECD Model Tax Treaty states explicitly applies to the residents of either one or both the contracting states. Previously the tax treaties applied to the citizens of the countries. Article 4 of the Convention defines the term resident, and Para 1 of Article 3 establishes the person. If the person is a resident of the contracting state, he does not, by default, become beneficiary of the treaty, since the specific Articles of the Convention could deny some benefits.
Paragraph 2 of Article 1 of the OECD Model Tax Treaty addresses the situation of the income of entities that are wholly or partially fiscally transparent. This paragraph attempts to enforce the principles laid down in the 1999 report of the Committee on
Fiscal Affairs entitled “The Application of the OECD Model Tax Convention to Partnerships.” Above mentioned paragraph 2 exclusively states that the benefit of the Convention would not be available to the fiscally transparent entities if neither of the contracting states treats the income of the fiscally transparent entities or arrangements as the income of the residents.
Let us illustrate it. Country A and Country B have existing DTAA. Country C does not have DTAA with any countries. Mr. A makes payment of interest to a lender LQ LLC which is a resident of Country B. As per Country A law, a limited liability entity is a person. Country A withholds the tax for which Country B will provide tax relief while taxing the income. LQ LLC is a fiscally transparent entity as per Country B. Its partner, Mr. L, who is a resident of Country B and Mr. Q, who is a resident of Country C, will pay tax on their share of income from LQ LLC. Mr. L will get a tax relief due to the DTAA. But as per Para 2 of Article 1, Mr. Q will not get any tax relief from Country B as he is a resident of Country C.

The phrase “income derived by or through an entity or arrangement” has a broader meaning which covers income earned by the entity or establishment, irrespective of the Contracting state’s view.
The phrase “fiscally transparent” refers to cases where the income is taxed at the level of the person rather than at the level of the entity. For a detailed explanation of the Fiscally transparent concept, click here.
Paragraph 3 of Article 1 of the OECD Model Tax Treaty confirms the general principle that the Convention does not intend to restrict the right of the contracting states to tax its residents except where it is expressly intended. The below-mentioned Articles are the situations where the Contracting State may provide the treaty benefits to its own resident.
- Para 3 of Article 7: Adjustments on the amount of tax charged on the profits of a Permanent Establishment.
- Para 2 of Article 9: Adjustments on amount of tax charged on the profits of the Associated Enterprise
- Article 19: Taxation on the income of an individual
- Article 20: Taxation on students
- Article 23A and 23B: Relief from Double taxation
- Article 24: Protection from discriminatory taxation
- Article 25: Mutual Agreement Procedure
- Article 28: Members of Diplomatic mission or Consular posts.