Following approval at the Committee on Fiscal Affairs, the OECD Council has approved and published the contents of the 2017 Update to the OECD Model Tax Convention (the OECD Model). The 2017 Update mainly includes changes developed as part of the BEPS project, and will be incorporated into a revised version of the OECD Model to be released in the next few months.
The 2017 Update includes the following changes, primarily reflecting changes developed through the BEPS project. Key changes include:
- Changes to the title, preamble, and commentary on Article 1 (Persons covered) reflecting recommendations under the Report on BEPS Action 6 (Preventing the granting of treaty benefits in inappropriate circumstances) and its follow on work in relation to improper use of the convention;
- A new Article 29 (Entitlement to Benefits), which includes in the OECD Model a limitation-on-benefits (LOB) rule (simplified and detailed versions), an anti-abuse rule for permanent establishments situated in third States, and a principal purposes test (PPT) rule, again reflecting recommendations under the Report on BEPS Action 6 and its follow up work;
- Various changes to Article 5 (Permanent establishment) and its Commentary reflecting recommendations under the Report on BEPS Action 7 (Preventing the artificial avoidance of permanent establishment status) and its follow-up work; and
- Changes to the sections of the Model dealing with Mutual agreement procedure (MAP) following the Report on BEPS Action 14 (Making dispute resolution procedures more effective) and its follow up work.
Certain other changes outside of the BEPS initiative are also included:
- Changes to Article 8 (International shipping and air transport);
- Changes to Article 4 (Resident) in relation to whether houses rented to unrelated persons can be a ‘permanent home available to’ a landlord and to clarify the meaning of ‘habitual abode’;
- The addition of a new paragraph to the commentary on Article 5 on the impact of registering for VAT/GST on the application and interpretation of the permanent establishment definition; and
- Changes to Article 10 (Dividends) intended to ensure that the reduced rate of source taxation on dividends is applicable in the case where new Article 1(2) would cause a dividend paid to a transparent entity to be considered income of a resident of a Contracting State because it is taxed either in the hands of the entity or its members.
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