Article 6 (Income from immovable property)

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise.

Switzerland's non-exhaustive list of double taxation treaties based on Article 6 of the OECD Model

 CountryCorresponding to Art. 6 Deviations (this section is under construction)
 AustriaArt. 6 (German/French)Art. 6 para. 1: No restriction regarding income from immovable property situated in the other Contracting State. Income from agriculture or forestry are not mentioned.
 ChinaArt. 6 (German/French/English) 
 EU  
 FranceArt. 6 (German/French) 
 GermanyArt. 6 (German/French) 
 Great BritainArt. 6 (German/French/English) 
 Hong-KongArt. 6 (German/French/English) 
 IndiaArt. 6 (German/French/English) 
 ItalyArt. 6 (German/French/English) 
 Liechtensteinpending 
 LuxemburgArt. 6 (German/French/English) 
 MaltaArt. 6 (German/French/English) 
 NetherlandsArt. 6 (German/French/English) 
 SpainArt. 6 (German/French) 
 USAArt. 6 (German/French/English)

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Article 6 and Commentary of the UN Model Double Taxation Convention between Developed and Developing Countries

last edited 15.6.15 and based on the UN Model Double Taxation Convention between Developed and Developing Countries (2011)

Article 6 (Income from immovable property)
1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.


Commentary 2011:
"A. General considerations

1. Article 6 of the United Nations Model Convention reproduces Article 6 of the OECD Model Convention with the exception of the phrase “and to income from immovable property used for the performance of independent personal services” which appears at the end of paragraph 4 of the United Nations Model Convention. This phrase is included in the United Nations Model Convention as a result of the retention of Article 14 dealing with Independent Personal Services.

2. In taxing income from immovable property, the object should be the taxation of profits rather than of gross income; the expenses incurred in earning income from immovable [real] property or from agriculture or forestry should therefore be taken into account. This objective should not, however, preclude the use of a withholding tax on rents from immovable [real] property, based on gross income; in such cases the rate should take into account the fact that expenses have been incurred. On the other hand, if a withholding tax on gross rents is used, it will be just as satisfactory if the owner of the immovable [real] property can elect to have the income from the property taxed on a net basis under the regular income tax. Article 6 is not intended to prevent a country which taxes income from agriculture or other immovable property on an estimated or similar basis from continuing to use that method.

3. Some members of the former Group of Experts were of the view that the distribution of dividends by a company referred to in Article 13, paragraph 4, should be treated as income from immovable property and, therefore, as covered by Article 6. However, this view was not shared by most other members.

4. It was noted that in some countries, a person may receive income (typically rental income) from immovable property in circumstances where that person instead of directly owning the immovable property owns shares of a company owning that property and that the ownership of those shares entitles that person to the use or enjoyment of the property. Contracting States are free to expand the scope of the Article to cover the deemed income from that use or enjoyment. They may also expand the scope of Article 22 to allow source taxation of shares of such companies.


B. Commentary on the paragraphs of article 6

Paragraph 1
5. This paragraph grants the right to tax income from immovable property (including income from agriculture or forestry) to the State of source, that is, the State where the property in question is situated. In the words of the Commentary on the OECD Model Convention, this provision is based on “the fact that there is always a very close economic connection between the source of this income and the State of source”. ["Paragraph 1 of the OECD Commentary on Article 6."]

6. The OECD Commentary observes:

1. […] Although income from agriculture or forestry is included in Article 6, Contracting States are free to agree in their bilateral conventions to treat such income under Article 7. Article 6 deals only with  income which a resident of a Contracting State derives from immovable property situated in the other Contracting State. It does not, therefore, apply to income from immovable property situated in the Contracting State of which the recipient is a resident within the meaning of Article 4 or situated in a third State; the provisions of paragraph 1 of Article 21 shall apply to such income.

Paragraph 2
7. This paragraph, which gives the term “immovable property” the meaning that it has under the law of the Contracting State in which the property is situated, is intended to alleviate difficulties of interpretation with regard to whether an asset or a right is to be regarded as immovable property. In addition the paragraph lists a number of assets and rights which are in any case to be regarded as covered by the term. On the other hand, the paragraph provides that ships, boats and aircraft shall not be regarded as immovable property. Interest from debt secured by immovable property is not covered by Article 6, but is a matter which is instead dealt with under Article 11 relating to interest.

Paragraph 3
8. This paragraph provides that the general rule set forth in paragraph 1 shall apply regardless of the form in which immovable property is used. 

Paragraph 4
9. This paragraph stipulates that the provisions of paragraphs 1 and 3 apply also to income from immovable property, of industrial, commercial and other enterprises and to income from immovable property used for the performance of independent personal services. The OECD Commentary also observes that:

4. […] the right to tax of the State of source has priority over the right to tax of the other State and applies also where in the case of an enterprise income is only indirectly derived from immovable property. This does not prevent income from immovable property, when derived through a permanent establishment, from being treated as income of an enterprise, but secures that income from immovable property will be taxed in the State in which the property is situated also in the case where such property is not part of a permanent establishment situated in that State. It should further be noted that the provisions of the Article do not prejudge the application of domestic law as regards the manner in which income from immovable property is to be taxed.

These observations apply equally in the case of non-industrial and non-commercial activities by reason of the inclusion in paragraph 4 of the United Nations Model Convention on income from immovable property used for the performance of independent personal services."

Commentary on Article 6 of the OECD Model Tax Convention

Extract from 2014 Commentary:
"1. Paragraph 1 gives the right to tax income from immovable property to the State of source, that is, the State in which the property producing such income is situated. This is due to the fact that there is always a very close economic connection between the source of this income and the State of source. Although income from agriculture or forestry is included in Article 6, Contracting States are free to agree in their bilateral conventions to treat such income under Article 7. Article 6 deals only with income which a resident of a Contracting State derives from immovable property situated in the other Contracting State. It does not, therefore, apply to income from immovable property situated in the Contracting State of which the recipient is a resident within the meaning of Article 4 or situated in a third State; the provisions of paragraph 1 of Article 21 shall apply to such income.

2. Defining the concept of immovable property by reference to the law of the State in which the property is situated, as is provided in paragraph 2, will help to avoid difficulties of interpretation over the question whether an asset or a right is to be regarded as immovable property or not. The paragraph, however, specifically mentions the assets and rights which must always be regarded as immovable property. In fact such assets and rights are already treated as immovable property according to the laws or the taxation rules of most OECD member countries. Conversely, the paragraph stipulates that ships, boats and aircraft shall never be considered as immovable property. No special provision has been included as regards income from indebtedness secured by immovable property, as this question is settled by Article 11.

2.1 The phrase “including income from agriculture or forestry” in paragraph 1 extends the scope of Article 6 to include not only income derived from immovable property as defined in paragraph 2 but also income from activities that constitute agriculture or forestry. Income from agriculture and forestry includes not only the income that an enterprise engaged in agriculture or forestry derives from selling its agricultural and forestry production but also income that is an integral part of the carrying on of agriculture or forestry activities — for instance, income derived from the acquisition or trading of emissions permits (the nature of these permits is explained in paragraph 75.1 of the Commentary on Article 7) where such acquisition or trading is an integral part of the carrying on of agriculture or forestry activities, e.g. where the permits are acquired for the purpose of carrying on these activities or where permits acquired for that purpose are subsequently traded when it is realised that they will not be needed.

3. Paragraph 3 indicates that the general rule applies irrespective of the form of exploitation of the immovable property. Paragraph 4 makes it clear that the provisions of paragraphs 1 and 3 apply also to income from immovable property of industrial, commercial and other enterprises. Income in the form of distributions from Real Estate Investment Trusts (REITs), however, raises particular issues which are discussed in paragraphs 67.1 to 67.7 of the Commentary on Article 10.

4. It should be noted in this connection that the right to tax of the State of source has priority over the right to tax of the other State and applies also where, in the case of an enterprise, income is only indirectly derived from immovable property. This does not prevent income from immovable property, when derived through a permanent establishment, from being treated as income of an enterprise, but secures that income from immovable property will be taxed in the State in which the property is situated also in the case where such property is not part of a permanent establishment situated in that State. It should further be noted that the provisions of the Article do not prejudge the application of domestic law as regards the manner in which income from immovable property is to be taxed.


Reservations on the Article 

5. Finland reserves the right to tax income of shareholders in Finnish companies from the direct use, letting, or use in any other form of the right to enjoyment of immovable property situated in Finland and held by the company, where such right is based on the ownership of shares or other corporate rights in the company.

6. France wishes to retain the possibility of applying the provisions in its domestic laws relative to the taxation of income from shares or rights, which are treated therein as income from immovable property.

7. Spain reserves its right to tax income from any form of use of a right to enjoyment of immovable property situated in Spain when such right derives from the holding of shares or other corporate rights in the company owning the property.

8. Canada reserves the right to include in paragraph 3 a reference to income from the alienation of immovable property.

9. New Zealand reserves the right to include fishing and rights relating to all natural resources under this Article.

10. The United States reserves the right to add a paragraph to Article 6 allowing a resident of a Contracting State to elect to be taxed by the other Contracting State on a net basis on income from real property.

11. Australia reserves the right to include rights relating to all natural resources under this Article.

12. Mexico reserves the right to treat as immovable property any right that allows the use or enjoyment of immovable property situated in a Contracting State where that use or enjoyment relates to time sharing since under its domestic law such right is not considered to constitute immovable property.

13. Estonia reserves the right to include in the definition of the term “immovable property” any right of claim in respect of immovable property because such right of claim may not be included in its domestic law meaning of the term.

14. Israel reserves the right to include in paragraph 2 “any option or similar right to acquire immovable property”."