Remote Workers – potential changes to the UN model tax treaty

Insight: The UN’s Tax Committee is considering an addition to Article 15 of its model treaty, targeted at the employment income of remote workers

The growth of remote working arrangements has led to questions regarding the fair apportionment of taxing rights under existing treaties. The UN’s Tax Committee has been considering the question of remote worker taxation and whether changes to its model convention are required. With the 27th Session of the Committee of Experts on International Cooperation in Tax Matters taking place in Geneva between 17-20 October 2023, papers have now been published outlining the UN’s proposed Article 15(4) and further considerations on the topic.

Whilst it is possible that the UN’s proposed wording will iterate in the coming months, the current proposal would enable the employer’s State of residence to exercise additional taxing rights over the income of an employee who is working remotely in the other Contracting State.

The following draft Article 15(4) is intended for discussion during the UN Tax Committee’s 27th Session on 18 October 2023, with a view to its submission for final approval at the 28th Session next spring. Furthermore, draft accompanying Commentary will be developed for initial consideration at the 28th Session of the Committee.

Notwithstanding the provisions of paragraphs 1 and 2, remuneration derived by a resident of a Contracting State in respect of an employment exercised in that State or in a third State may be taxed in the other Contracting State to the extent that the remuneration is paid by [or on behalf of] an employer who is a resident of that other State.

A proposed addition to Article 23B would also ensure that double taxation should be prevented by way of a credit being granted by the State of the employer, to the extent that employment income is taxed in both States by virtue of Article 15(4). Therefore the additional taxing rights created by the proposed amendments to the model Convention operate, effectively, as a top-up tax for the employer’s State of residence.

It is welcome and encouraging to see the UN Tax Committee taking the initiative in its response to the growth in remote working arrangements and the plethora of tax questions it raises. However, at this stage the proposed paragraph arguably raises more questions than it resolves.

The taxation of remote workers was initially considered by the UN’s Tax Committee at the 26th Session of the Committee of Experts on International Cooperation in Tax Matters, in March 2023. It was agreed that Workstream C on remote workers should continue as a stand-alone project, however, there was no clear consensus on the focus of the work.

Subsequent Sub-Committee meetings were held during the summer, providing greater definition to the UN’s thinking around the issue, with these discussions resulting in the publication of the papers found in Annex 4 and 5 of its report on The Digitalized and Globalized Economy, shared in advance of the 27th Session of the Committee.

The two papers consider a wide range of issues relating to remote work, including the taxation of directors, government officials and ‘digital nomads’, however the primary focus is the question of how to tax the employment income of remote workers and prevent the erosion of the tax base of the employer’s State of residence. This has resulted in the proposed addition of Article 15(4) referred to above.

Draft Article 15(4) – initial reflections

The UN Tax Committee’s current proposals are at an early stage. If they do progress, we would anticipate the wording of Article 15(4) to iterate in the coming months. Furthermore, inclusion as a paragraph in the UN’s model tax convention does not automatically mean it will become a feature of all future tax treaties.  Nevertheless, the UN’s proposals are noteworthy and may lead to further developments in the cross-border taxation of remote workers as their thinking evolves. Our initial reflections on the current draft can be found below:

Domestic taxing provisions

The UN’s proposal grants additional taxing rights to the State in which the employer is resident to the extent that the remuneration is paid by or on behalf of that employer, even if the employee concerned has never actually exercised their employment duties in that State. Non-resident employees are typically only taxed to the extent that employment duties are performed in a given country, so unless such countries alter their domestic legislation, draft Article 15(4) may have limited effect in practice. Of course, it is possible that countries may alter their domestic legislation to give broader scope to taxing non-residents, but that would run contrary to a general principle of residency-based taxation that a State does not tax individuals who have never performed employment duties in that location.

Winners and losers

One of the overriding problems with any measure to address the taxation of remote workers is that its likely popularity and effectiveness will be driven by the extent to which a Contracting State believes it will benefit from the measure. If the net inflow/outflow of tax revenue from remote workers is considered likely to be generally equal between Contracting States then the measure may gain acceptance, however, if instead there is a ‘Winner’ and a ‘Loser’ between the two parties, then adoption is far less likely. In the case of the proposed paragraph, granting additional taxing rights to the employer’s State of residence would seemingly favour more developed economies where an international employer would typically be resident, but would seemingly present far less upside for emerging economies with fewer employers whose employees work remotely.


The position regarding secondments may also be tricky to navigate in practice. If a secondee’s remuneration continues to be paid by their contractual employer back in their home country, does this mean that Article 15(4) would ensure that the home country continues to have taxing rights, notwithstanding the possibility that they are neither resident nor performing any duties in that country whilst on secondment? The application of the economic employer concept may resolve the position adequately in some scenarios (i.e. if it is determined that the ‘employer’ for treaty purposes is actually the entity for which the individual is working in their country of assignment then Article 15(4) would not apply), albeit not all countries apply the economic employer concept and so anomalous taxing positions may ensure.

Overseas branches

In a similar vein to the inadvertent impact on secondments, the draft paragraph would appear to apply even where the employee is working as an employee of an overseas branch, perhaps unintentionally giving the provision broader application than standard remote work scenarios. By way of illustration, would it make sense for an employee of the UK branch of a Japanese bank to be subject to tax additionally in Japan despite living and working in London? Many would say not, so it would seem that the UN would need to give further consideration to scenarios of this nature and ensure that they are not affected by the proposed measure.

The UN’s timeline and next steps

The UN’s engagement with the growth in remote working and the tax challenges which it throws up is very welcome. However, the current proposals clearly demonstrate the practical difficulties in finding a way forward which works for the majority of Contracting States. It is to be hoped that these challenges can be resolved in time for the intended finalisation of the measures at the UN Tax Committee’s 28th Session next spring. In the meantime, we also await publication of the OECD’s scoping note on remote workers, which is expected before the end of the year and which should also explore the question of Permanent Establishment risks arising from remote work. There’s clearly more to come from the UN and OECD on the subject of remote work, though whether a workable consensus can be found on formal additions to their respective model conventions remains uncertain.