Article 3 (General definitions)

1. For the purposes of this Convention, unless the context otherwise requires:

a) the term “person” includes an individual, a company and any other body of persons;

b) the term “company” means any body corporate or any entity that is treated as a body corporate for tax purposes;

c) the term “enterprise” applies to the carrying on of any business;

d) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

e) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;

f) the term “competent authority” means:

(i)  (in State A): ................................
(ii) (in State B): ................................

g) the term “national”, in relation to a Contracting State, means:

(i) any individual possessing the nationality or citizenship of that Contracting State; and
(ii) any legal person, partnership or association deriving its status as such from the laws in force in that Contracting State;

h) the term “business” includes the performance of professional services and of other activities of an independent character.

2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the    law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State

Switzerland's non-exhaustive list of double taxation treaties based on Article 3 of the OECD Model

 CountryCorresponding to Art. 3 Deviations (this section is under construction)
 AustriaArt. 3 (German/French)
  • "International traffic" and "business" are not defined.
  • Art. 3 para. 1 lit. e: "in a Contracting Staat" instead of "in that Contracting Staat"(in German: "in einem" instead of "in diesem").
 ChinaArt. 3 (German/French/English) 
 EU  
 FranceArt. 3 (German/French) 
 GermanyArt. 3 (German/French) 
 Great BritainArt. 3 (German/French/English) 
 Hong-KongArt. 3 (German/French/English) 
 IndiaArt. 3 (German/French/English) 
 ItalyArt. 3 (German/French/English) 
 Liechtensteinpending 
 LuxemburgArt. 3 (German/French/English) 
 MaltaArt. 3 (German/French/English) 
 NetherlandsArt. 3 (German/French/English) 
 SpainArt. 3 (German/French) 
 USAArt. 3 (German/French/English)

Regulations - Verordnungstexte - Ordonnances


Swiss Case law - Rechtsprechung - Jurisprudence


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Article 3 and Commentary of the UN Model Double Taxation Convention between Developed and Developing Countries

last edited 17.6.15 and based on the UN Model Double Taxation Convention between Developed and Developing Countries (2011)

Article 3 (General definitions)

1. For the purposes of this Convention, unless the context otherwise requires:

(a) The term “person” includes an individual, a company and any other body of persons;

(b) The term “company” means any body corporate or any entity that is treated as a body corporate for tax purposes; 

(c) The terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State; 

(d) The term “international traffic” means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State; 

(e) The term “competent authority” means:       

(i) (In State A): ............................................      

(ii) (In State B): ............................................

(f) The term “national” means:       

(i) any individual possessing the nationality of a Contracting State       

(ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State.

2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.


Commentary 2011:
"A. General considerations 

1. Article 3 of the United Nations Model Convention is the same as Article 3 of the OECD Model Convention, except that Article 3 of the OECD Model Convention defines the terms “enterprise” and “business” in subparagraphs c) and h) of paragraph 1 while Article 3 of the United Nations Model Convention does not. This is because the OECD Model Convention has deleted Article 14 (Independent Personal Services) while the United Nations Model Convention still maintains it.

2. Several general definitions are normally necessary for the understanding and application of a bilateral tax convention, although terms relating to more specialized concepts are usually defined or interpreted in special provisions. On the other hand, there are terms whose definitions are not included in the Convention but are left to bilateral negotiations. 

3. Article 3 of the United Nations Model Convention, like Article 3 of the OECD Model Convention, sets forth a number of general definitions required for the interpretation of the terms used in the Convention. These terms are “person”, “company”, “enterprise of a Contracting State”, “international traffic”,“competent authority” and “national”. Article 3 leaves space for the designation of the “competent authority” of each Contracting State. The terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms used in the articles on special categories of income (e.g. immovable property, dividends) is clarified in the articles concerned. The parties to a convention are left free to agree bilaterally on a definition of the terms “a Contracting State” and 
“the other Contracting State”. They also may include in the definition of a Contracting State a reference to continental shelves.


B. Commentary on the paragraphs of article 3

Paragraph 1
(a) The term “person” 
4. The term “person”, which is defined in subparagraph (a) as including an individual, a company and any other body of persons, should be interpreted very broadly. According to paragraph 2 of the Commentary on Article 3 of the OECD Model Convention, the term also includes “any entity that, although not incorporated, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (fondation, Stiftung) may fall within the meaning of the term “person”. Partnerships will also be considered to be “persons” either because they fall within the definition of “company” or, where this is not the case, because they constitute other bodies of persons.”

(b) The term “company”
5. The definition of the term “company”, like the corresponding definition in the OECD Model Convention, is formulated with special reference to Article 10 on dividends. The definition is relevant to that Article and to Article 5, paragraph 8, and Article 16, corresponding respectively to Article 5, paragraph 7, and Article 16 of the OECD Model Convention.

(c) The term “enterprise of a Contracting State”
6. Subparagraph (c) defines the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State”. It does not define the term “enterprise” per se, because, as noted in the Commentary on the OECD Model Convention, “[t]he question whether an activity is performed within an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States”.

(d) The term “international traffic”
7. The definition of the “international traffic” is based on the principle that the right to tax profits arising from the operation of ships or aircraft in international traffic resides only in the Contracting State in which the place of effective management is situated. This principle is set forth in Article 8 (alternative  A), paragraph 1 (corresponding to Article 8, paragraph 1, of the OECD Model Convention), and in Article 8 (alternative B), paragraph 1, and the first sentence of paragraph 2 (provided in the latter case that the shipping activities concerned are not more than casual). However, the Contracting States may agree on a bilateral basis to substitute a reference to residence in subparagraph (d) if appropriate to conform to the general tenor of the other articles relating to international traffic. In such cases, as noted in the commentary on the OECD Model Convention, “the words ‘an enterprise that has its place of effective management in a Contracting State’ should be replaced by ‘an enterprise of a Contracting State’ or ‘a resident of a Contracting State’”.

8. As also noted in the OECD Commentary, “[t]he definition of the term “international traffic” is broader than the term is normally understood [in order] to preserve for the State of the place of effective management the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders”.

(e) The term “competent authority”
9. As in the OECD Model Convention, the definition of the term “competent authority” is left to the Contracting States, which are free to designate one or more authorities as being competent for the purpose of applying the Convention. This approach is necessary because in some countries the implementation of double taxation conventions may not lie solely within the jurisdiction of the highest tax authorities in so far as some matters may be reserved to, or may fall within the competence of, other authorities.

(f) The term “national”

10. Initially, the definition of the term “national” occurred in paragraph 2 of Article 24 relating to “Non-discrimination”. As a result, the definition of the term “national” would have restricted application only for the purposes of Article 24. Since the term “national” has been referred to in other articles of the Convention as well, namely, Article 4, paragraph 2, subparagraphs (c) and (d), Article 19, Article 24 and Article 25, it was decided in 1999 to shift the definition of the term “national” from paragraph 2 of Article 24 to subparagraph (f) of paragraph 1 of Article 3. For natural persons, the definition merely states that the term applies to any individual possessing the nationality of a Contracting State. It has not been found necessary to introduce into the text of the Convention any considerations on the signification of the con-
cept of nationality, any more than it seemed appropriate to make any special comment on the meaning and application of the word. In determining what is meant by “the nationals of a Contracting State” in relation to individuals, reference must be made to the sense in which the term is usually employed and each State’s rules on the acquisition or loss of nationality.

11. Subparagraph (f) is more specific as to legal persons, partnerships and associations. By declaring that any legal person, partnership or association deriving its status as such from the laws in force in a contracting State is considered to be a national, the provision disposes of a difficulty which often arises in determining the nationality of companies. In defining the nationality of companies, some States have regard less to the law which governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it.

12. Moreover, in view of the legal relationship created between the company and the State under whose laws it is constituted, which resembles the relationship of nationality for individuals, it seems appropriate not to deal with legal persons, partnerships and associations in a special provision, but to assimilate them with individuals under the term “national”. 

Paragraph 2
13. Like Article 3, paragraph 2, of the OECD Model Convention, this paragraph contains a general rule concerning the meaning of terms used but not defined in the Convention. According to the OECD Commentary, paragraph 2 was amended in 1995 in order:

13.1 […] to conform its text more closely to the general and consistent understanding of member states. For purposes of paragraph 2, the meaning of any term not defined in the Convention may be ascertained by reference to the meaning it has for the purpose of any relevant provision of the domestic law of a Contracting State, whether or not a tax law. However, where a term is defined differently for the purposes of different laws of a Contracting State, the meaning given to that term for purposes of the laws imposing the taxes to which the Convention applies shall prevail over all others, including those given for the purposes of other tax laws. States that are able to enter into mutual agreements (under the provisions of Article 25 and, in particular, paragraph 3 thereof) that establish the meanings of terms not defined in the Convention should take those agreements into account in interpreting those terms.

When a conflict arises between the law in force when the Convention was signed and that in force when the Convention is applied, the latter law prevails. 

14. The OECD Commentary states:

12. However, paragraph 2 specifies that this applies only if the context does not require an alternative interpretation. The context is determined in particular by the intention of the Contracting States when signing the Convention as well as the meaning given to the term in question in the legislation of the other Contracting State (an implicit reference to the principle of reciprocity on which the Convention is based). The wording of the Article therefore allows the competent authorities some leeway.

13. Consequently, the wording of paragraph 2 provides a satisfactory balance between, on the one hand, the need to ensure the permanency of commitments entered into by States when signing a convention (since a State should not be allowed to make a convention partially inoperative by amending afterwards in its domestic law the scope of terms not defined in the Convention) and, on the other hand, the need to be able to apply the Convention in a convenient and practical way over time (the need to refer to outdated concepts should be avoided)."

Commentary on Article 3 of the OECD Model Tax Convention

Extract from 2014 Commentary:
"1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. The meaning of some important terms, however, is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“income from immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles. In addition to the definitions contained in the Article, Contracting States are free to agree bilaterally on

definitions of the terms “a Contracting State” and “the other Contracting State”. Furthermore, Contracting States are free to agree bilaterally to include in the possible definitions of “Contracting States” a reference to continental shelves. 

Paragraph 1
The term “person"
2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity that, although not incorporated, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (fondation, Stiftung) may fall within the meaning of the term “person”. Partnerships will also be considered to be “persons” either because they fall within the definition of “company” or, where this is not the case, because they constitute other bodies of persons.

The term “company"
3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate for the purposes of the tax law of the Contracting State of which it is a resident. The definition is drafted with special regard to the Article on dividends. The term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.

The term “enterprise"
4. The question whether an activity is performed within an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No exhaustive definition of the term “enterprise” has therefore been attempted in this Article. However, it is provided that the term “enterprise” applies to the carrying on of any business. Since the term “business” is expressly defined to include the performance of professional services and of other activities of an independent character, this clarifies that the performance of professional services or other activities of an independent character must be considered to constitute an enterprise, regardless of the meaning of that term under domestic law. States which consider that such clarification is unnecessary are free to omit the definition of the term “enterprise” from their bilateral conventions.

The term "international traffic"
5. The definition of the term “international traffic” is based on the principle set forth in paragraph 1 of Article 8 that the right to tax profits from the operation of ships or aircraft in international traffic resides only in the Contracting State in which the place of effective management is situated in view of the special nature of the international traffic business. However, as stated in the Commentary on paragraph 1 of
Article 8, the Contracting States are free on a bilateral basis to insert in subparagraph e) a reference to residence, in order to be consistent with the general pattern of the other Articles. In such a case, the words “an enterprise that has its place of effective management in a Contracting State” should be replaced, by “an enterprise of a Contracting State” or “a resident of a Contracting State”.

6. The definition of the term “international traffic” is broader than is normally understood. The broader definition is intended to preserve for the State of the place of effective management the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders. This intention may be clarified by the following illustration.
Suppose an enterprise of a Contracting State or an enterprise that has its place of effective management in a Contracting State, through an agent in the other Contracting State, sells tickets for a passage that is confined wholly within the first-mentioned State or alternatively, within a third State. The Article does not permit the other State to tax the profits of either voyage. The other State is allowed to tax such an
enterprise of the first-mentioned State only where the operations are confined solely to places in that other State.

6.1 A ship or aircraft is operated solely between places in the other Contracting State in relation to a particular voyage if the place of departure and the place of arrival of the ship or aircraft are both in that other Contracting State. However, the definition applies where the journey of a ship or aircraft between places in the other Contracting State forms part of a longer voyage of that ship or aircraft involving a place of departure or a place of arrival which is outside that other Contracting State. For example, where, as part of the same voyage, an aircraft first flies between a place in one Contracting State to a place in the other Contracting State and then continues to another destination also located in that other Contracting State, the first and second legs of that trip will both be part of a voyage regarded as falling within the definition of “international traffic”.

6.2 Some States take the view that the definition of “international traffic” should rather refer to a transport as being the journey of a passenger or cargo so that any voyage of a passenger or cargo solely between two places in the same Contracting State should not be considered as covered by the definition even if that voyage is made on a ship or plane that is used for a voyage in international traffic. Contracting States
having that view may agree bilaterally to delete the reference to “the ship or aircraft” in the exception included in the definition, so as to use the following definition:

e) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when such transport is solely between places in the other Contracting State;

6.3 The definition of “international traffic” does not apply to a transport by an enterprise which has its place of effective management in one Contracting State when the ship or aircraft is operated between two places in the other State, even if part of the transport takes place outside that State. Thus, for example, a cruise beginning and ending in that other State without a stop in a foreign port does not constitute a
transport of passengers in international traffic. Contracting States wishing to expressly clarify that point in their conventions may agree bilaterally to amend the definition accordingly.

The term “competent authority"
7. The definition of the term “competent authority” recognises that in some OECD member countries the execution of double taxation conventions does not exclusively fall within the competence of the highest tax authorities; some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to designate one or more authorities as being competent.

The term “national"
8. The definition of the term “national” merely stipulates that, in relation to a Contracting State, the term applies to any individual possessing the nationality or citizenship of that Contracting State. Whilst the concept of nationality covers citizenship, the latter term was also included in 2002 because it is more frequently used in some States. It was not judged necessary to include in the text of the Convention any more precise definition of the terms nationality and citizenship, nor did it seem indispensable to make any special comment on the meaning and application of these words. Obviously, in determining what is meant by “national” in the case of an individual, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality or citizenship.

9. Subparagraph g) is more specific as to legal persons, partnerships and associations. By declaring that any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State is considered to be a national, the provision disposes of a difficulty that often arises. In defining the nationality of companies, certain States have regard less to the law that governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it. 

10. Moreover, in view of the legal relationship created between a company and the State under whose law it is organised, which from certain points of view is closely akin to the relationship of nationality in the case of individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to assimilate them with individuals under the term “national”.

10.1 The separate mention of partnerships in subparagraph g) is not inconsistent with the status of a partnership as a person under subparagraph a). Under the domestic laws of some countries, it is possible for an entity to be a “person” but not a “legal person” for tax purposes. The explicit statement is necessary to avoid confusion.

The term "business"
10.2 The Convention does not contain an exhaustive definition of the term “business”, which, under paragraph 2, should generally have the meaning which it has under the domestic law of the State that applies the Convention. Subparagraph h), however, provides expressly that the term includes the performance of professional services and of other activities of an independent character. This provision was added in 2000 at the same time as Article 14, which dealt with Independent Personal Services, was deleted from the Convention. This addition, which ensures that the term “business” includes the performance of the activities which were previously covered by Article 14, was intended to prevent that the term “business” be interpreted in a restricted way so as to exclude the performance of professional services, or other activities of an independent character, in States where the domestic law does not consider that the performance of such services or activities can constitute a business. Contracting States for which this is not the case are free to agree bilaterally to omit the definition.

Paragraph 2
11. This paragraph provides a general rule of interpretation for terms used in the Convention but not defined therein. However, the question arises which legislation must be referred to in order to determine the meaning of terms not defined in the Convention, the choice being between the legislation in force when the Convention was signed or that in force when the Convention is being applied, i.e. when the tax is

imposed. The Committee on Fiscal Affairs concluded that the latter interpretation should prevail, and in 1995 amended the Model to make this point explicitly.

12. However, paragraph 2 specifies that this applies only if the context does not require an alternative interpretation. The context is determined in particular by the intention of the Contracting States when signing the Convention as well as the meaning given to the term in question in the legislation of the other Contracting State (an implicit reference to the principle of reciprocity on which the Convention is based). The wording of the Article therefore allows the competent authorities some leeway.

13. Consequently, the wording of paragraph 2 provides a satisfactory balance between, on the one hand, the need to ensure the permanency of commitments entered into by States when signing a convention (since a State should not be allowed to make a convention partially inoperative by amending afterwards in its domestic law the scope of terms not defined in the Convention) and, on the other hand, the need to be able to apply the Convention in a convenient and practical way over time (the need to refer to outdated concepts should be avoided). 

13.1 Paragraph 2 was amended in 1995 to conform its text more closely to the general and consistent understanding of member states. For purposes of paragraph 2, the meaning of any term not defined in the Convention may be ascertained by reference to the meaning it has for the purpose of any relevant provision of the domestic law of a Contracting State, whether or not a tax law. However, where a term is defined
differently for the purposes of different laws of a Contracting State, the meaning given to that term for purposes of the laws imposing the taxes to which the Convention applies shall prevail over all others, including those given for the purposes of other tax laws. States that are able to enter into mutual agreements (under the provisions of Article 25 and, in particular, paragraph 3 thereof) that establish the meanings of terms not defined in the Convention should take those agreements into account in interpreting those terms.


Reservations on the Article

14. Italy and Portugal reserve the right not to include the definitions in subparagraphs 1 c) and h) (“enterprise” and “business”) because they reserve the right to include an article concerning the taxation of independent personal services. 

15. Chile, Mexico and the United States reserve the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e) of paragraph 1.

16. Israel reserves the right to include a trust within the definition of a “person”."



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