OECD consults on updated model tax convention

The OECD committee on fiscal affairs has released a draft of the planned 2017 update to the OECD model tax convention, and is seeking feedback solely on those elements which have not already been approved as part of its work on the Base Erosion and Profit Shifting (BEPS) project

The changes under consideration include changes to 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, and the definition of ‘habitual abode’, for the purposes of the tie-breaker rule.

A new paragraph has been added to the commentary on article 5, indicating that registration for the purposes of a VAT or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition.

The phrase ‘other than a partnership’ has been deleted from the text of article 10, which is intended to ensure that the reduced rate of source taxation on dividends is applicable in cases where 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 of the commentary.

In addition there are a number of changes to the OECD model tax convention that have been approved as part of the BEPS project, covered as part of the follow-up work on the treaty-related BEPS measures, and/or were previously released for comments.

These do not form part of the current consultation. They include the changes made to action 2 (neutralising the effects of hybrid mismatch arrangements), action 6 (preventing the granting of treaty benefits in inappropriate circumstances), action 7 (preventing the artificial avoidance of permanent establishment status) and action 14 (making dispute resolution procedures more effective).

The 2017 update will also contain a number of changes and additions to the observations, reservations and positions of OECD member countries and non-member economies, which are in the process of being formulated.

The deadline for comments in 10 August. 

Draft contents of the 2017 update to the OECD model tax convention is here.

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