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OECD: Draft contents of 2017 update to Model Tax Convention

OECD: 2017 update to Model Tax Convention

The OECD Committee on Fiscal Affairs today released the draft contents of the 2017 update to the OECD Model Tax Convention.

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The draft contents of the 2017 update [PDF 2.7 MB] to the OECD Model Tax Convention were 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 parts of the 2017 update were previously approved as part of the OECD’s base erosion and profit shifting (BEPS) project.  The 2017 update will be submitted for the approval of the Committee on Fiscal Affairs and of the OECD Council later in 2017. Accordingly, the draft may not reflect the final views of the OECD and its member countries.

Request for comments

Comments are requested with respect to certain parts of the 2017 update that have not previously been released for comments, with respect to:

  • Changes to paragraph 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 Article 4(2) a).
  • Changes to paragraphs 17 and 19 of, and the addition of new paragraph 19.1 to, the Commentary on Article 4. These changes are intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c).
  • The addition of new paragraph 1.1 to the Commentary on Article 5. The paragraph indicates that registration for the purposes of a value added tax (VAT) 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 subparagraph 2 a) of Article 10, intended to allow for the reduced rate of source taxation on dividends provided by that subparagraph is applicable in the case when new Article 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 paragraphs 11 and 11.1 of the Commentary on Article 10.

Comments are due by 10 August 2017.

Prior changes as approved under BEPS project

Today’s release from the OECD states that comments are not 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 include the following:

  • Changes contained in the report on BEPS Action 2 (Neutralising the effects of hybrid mismatch arrangements), the report on BEPS Action 6 (Preventing the granting of treaty benefits in inappropriate circumstances), the report on BEPS Action 7 (Preventing the artificial avoidance of permanent establishment status), and the report on BEPS Action 14 (Making dispute resolution procedures more effective) as well as changes developed in the follow-up work on those BEPS actions.
  • Changes to the Commentary on Article 5 integrating the changes resulting from the work on BEPS Action 7 with previous work on the interpretation and application of Article 5.
  • Changes to Article 8, related changes to subparagraph 1 e) of Article 3 (the definition of “international traffic”) and paragraph 3 of Article 15 (concerning the taxation of the crews of ships and aircraft operated in international traffic), and consequential changes to Articles 6, 13 and 22.
  • Changes to paragraph 5 of Article 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 the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (the Multilateral Instrument or "MLI”) adopted on 24 November 2016.
  • Consequential changes required as a result of the contents of the 2017 update.
  • The OECD release explains that 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.

Comments received (August 2017)

The OECD on 14 August 2017 announced and publicly released the comments received with respect to the draft 2017 update to the OECD Model Tax Convention. Read the comments on the OECD website.

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