by Julie Martin
The UN Committee of Experts on International Cooperation in Tax Matters (Committee) has released several reports in advance of its annual meeting, slated for October 11–14 in New York, revealing that significant changes to the UN’s transfer pricing manual and model tax treaty are under consideration.
A revised version of the United Nations Practical Manual on Transfer Pricing for Developing Countries, to be presented for consideration and approval at the meeting, will have a new format, according to a report of the subcommittee developing the manual.
The chapters have also undergone “significant updating” to take into account global tax issues, such as the G20/OECD base erosion profit shifting (BEPS) plan output. Moreover, new chapters on cost contribution arrangements, intragroup services, and intangibles will be added to the revised transfer pricing manual, the subcommittee said.
While most of the proposed revisions have not yet been made public, the text of new Part D of the UN manual, which describes country transfer pricing practices, was released on the UN website.
New Part D would replace material in Chapter 10 of the current manual, providing updated information about transfer pricing practices in Brazil, India, and South Africa and adding a new section describing Mexico’s transfer pricing practices. A paper titled “Introduction to Transfer Pricing,” was also released.
A draft chapter for the revised UN manual on intragroup services was released last February.
It is expected that, if approved, the new UN transfer pricing manual will be published in Spring 2017.
UN model tax treaty
The Committee also released a report of the subcommittee on BEPS outlining proposed amendments to the United Nations Model Double Taxation Convention between Developed and Developing Countries (UN model tax treaty) for consideration and approval by the Committee. The amendments address BEPS issues that arise out of or were emphasized by the OECD/G20 BEPS plan.
Key changes would:
- Amend the title and preamble of tax conventions to make it clear that the tax treaties are designed to prevent tax avoidance.
- Add a principal purpose test, a third state permanent establishment rule, and a savings clause in Article 1.
- Add a new tie breaker rule for determining the treaty residence of dual resident persons other than individuals in Article 4.
- Add a new provision on prevention of the avoidance of permanent establishments.
- Modify rules in Article 10 regarding when a lower rate applies for dividends on direct ownership of shares above a 25% thresholds.
- Revise Article 13, paragraph 4, to modify the scope of the land-rich company rule.
- Revise Article 13, paragraph 5, for consistency with Article 13, paragraph 4.
A separate subcommittee report outlines recommended amendments to the UN model tax treaty to address hybrid entities.
Further, draft commentary to a new article proposed for the UN Model tax treaty on fees for technical services will also be considered at this week’s meeting. The Committee approved the text of the article on technical services in October 2015.
The following papers were released:
- Revised Draft Article and Commentary for UN Model Tax Convention – Fees for Technical Services” (E/C.18/2016/CRP 1) – Agenda item 3 (a) (vi)
- Update of the United Nations Practical Manual on Transfer Pricing for Developing Countries ” (E/C.18/2016/CRP.2) – Agenda item 3 (b) (i)
- Taxation of the extractive industries” (E/C.18/2016/CRP.3) – Agenda item 3 (b) (ii)
- Mutual agreement procedure — dispute avoidance and resolution” (E/C.18/2016/CRP.4) – Agenda item 3 (b) (v)
- Informal Secretariat Update of the Provisional Agenda and Organization of Work” (E/C.18/2016/CRP.5) Agenda item 2
- Tax incentives — presentation by delegate from the International Monetary Fund” (E/C.18/2016/CRP.6) – Agenda item 3 (b) (vii)
- Application of treaty rules to hybrid entities” (E/C.18/2016/CRP.7) – Agenda item 3 (a) (i)
- Article 12 (Royalties): possible amendments to the commentary on Article 12″ (E/C.18/2016/CRP.8) – Agenda item 3 (a) (iii)
- Article 26 (Exchange of information): proposed Code of Conduct” (E/C.18/2016/CRP 9) – Agenda item 3 (a) (v)
- Proposed BEPS-related Changes to the United Nations Model” (E/C.18/2016/CRP.10) – Agenda item 3 (a) (vii)
- Taxpayer rights in cross-border tax disputes” (E/C.18/2016/CRP.11) – Agenda item 3 (b) (v) Mutual agreement procedure — dispute avoidance and resolution
- Note by the Secretariat on “Enhancing the effectiveness of external support in building tax capacity in developing countries” (E/C.18/2016/2)
- Note by the Secretariat on “United Nations Capacity Development Programme on International Tax Cooperation” (E/C.18/2016/3)
- Note by the Secretariat on “The World Customs Organization Guide to Customs Valuation and Transfer Pricing” (E/C.18/2016/4)
- Note by the Secretariat on “Trade mis-invoicing” and its relationship to “transfer mis-pricing” (E/C.18/2016/5)