UK and International Tax news

OECD Releases Draft Update To Model Tax Convention

Wednesday 12th July 2017

The OECD Committee on Fiscal Affairs has recently released the draft contents of the 2017 update to the OECD Model Tax Convention prepared by the Committee’s Working Party 1.

The update has not yet been approved by the Committee on Fiscal Affairs or by the OECD Council, although significant parts of the 2017 update were previously approved as part of the BEPS package.  It will be submitted for the approval of the Committee on Fiscal Affairs and of the OECD Council later in 2017. This draft therefore does not necessarily reflect the final views of the OECD and its member countries.

Comments have been requested by 10 August 2017 only with respect to certain parts of the 2017 update that have not previously been released for comments. These changes include the following:

  • Changes to para 13 of the Commentary on Article 4 related to the issue whether a house rented to an unrelated person can be considered to be a “permanent home available to” the landlord for purposes of the tie-breaker rule in Art 4(2) (a).
  • Changes to paras 17 and 19 of, and the addition of new para 19.1 to, the Commentary on Art 4. These changes are intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Art 4(2) (c).
  • The addition of new para 1.1 to the Commentary on Art 5. That paragraph indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition.
  • Deletion of the parenthetical reference “(other than a partnership)” from subpara 2 (a) of Art 10, which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in the case where new Art 1(2) would have the effect that a dividend paid to a transparent entity would be considered to be income of a resident of a Contracting State because it is taxed either in the hands of the entity or in the hands of the members of that entity. That deletion is accompanied by new paras 11 and 11.1 of the Commentary on Art 10.

Comments have not been requested with respect to changes to the OECD Model Tax Convention that have been approved as part of the BEPS Package, were foreseen as part of the follow-up work on the treaty-related BEPS measures and/or were previously released for comments. These changes have been released for information and include the following:

  • Changes contained in the Report on Actions 2, 6, 7 and 14, as well as changes developed in the follow-up work on those Actions.
  • Changes to the Commentary on Art 5 integrating the changes resulting from the work on BEPS Action 7 with previous work on the interpretation and application of Art 5.
  • Changes to Art 8, related changes to subpara 1 (e) of Art 3 (the definition of “international traffic”) and para 3 of Art 15 (concerning the taxation of the crews of ships and aircraft operated in international traffic), and consequential changes to Art 6, 13 and 22. These changes also include related Commentary changes.
  • Changes to para 5 of Art 25, related Commentary changes and amendments to the “Sample Mutual Agreement on Arbitration” contained in an Annex to that Commentary. These changes are intended to reflect the MAP arbitration provision developed in the negotiation of MLI adopted on 24 November 2016.

As part of the 2017 update, a number of changes and additions will also be made to the observations, reservations and positions of OECD member countries and non-member economies. These changes and additions are in the process of being formulated and will be included in the final version of the 2017 update.

If you would like further information on the draft update, please contact Keith Rushen on 0207 486 2378.

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