OECD releases draft update of Model Tax Convention

The OECD Committee on Fiscal Affairs has just released a draft update of the OECD Model Tax Convention. Neither the Committee on Fiscal Affairs nor the OECD Council have yet approved the update, but some significant parts have already been sanctioned and published as part of the BEPS Action Plan. The released draft does not necessarily reflect the final views of the OECD and its member countries, as it will only be submitted for approval in the second half of 2017.

At this time, the OECD has invited the professional public to comment only with respect to those parts of the update that have not been approved as part of the BEPS Action Plan. Three of them involve changes to the Commentary, one involves the body of the Convention.

Two changes to the Commentary are proposed for Article 4, regulating the residence of an individual taxpayer (further clarification of the terms ‘permanent home available to’ and ‘habitual abode’); the third one is an addition to the Commentary on Article 5, indicating that a registration for the purposes of a value added tax or other turnover tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition. The only change in the body of the Convention is the deletion of the parenthetical reference ‘(other than a partnership)’ from Article 10 Dividends, referring to the company receiving dividends; the change follows the more detailed specification in Article 1 of the Convention as regards transparent entities.

Comments on the above changes should be submitted by 10 August 2017 to taxtreaties@oecd.org.

Please note that the 2017 update contains a number of changes and amendments previously approved within the BEPS Action Plan. These include in particular: neutralising the effects of hybrid mismatch arrangements, preventing the avoidance of permanent establishment status, and a mutual agreement and arbitration procedure.

 

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