2017 UN transfer pricing manual released, changes approved for model tax treaty

The UN’s Committee of Experts on International Cooperation in Tax Matters (UN Committee), during meetings held last week, released its revised and updated 2017 United Nations Practical Manual on Transfer Pricing for Developing Countries (2017 UN transfer pricing manual), designed to give concrete advice to developing nations on administering transfer pricing laws.

The UN Committee also agreed to key changes to the United Nations Model Double Taxation Convention between Developed and Developing Countries (UN model tax treaty) for a 2017 update, including the final wording for a new article providing for withholding tax on payments for technical services.

2017 UN transfer pricing manual

Speaking at a UN Economic and Social Council (ECOSOC) special meeting held April 7 in New York, Stig Sollund, who coordinates the UN Committee’s subcommittee on transfer pricing, noted that the 2017 UN transfer pricing manual is organized differently from the 2013 UN transfer pricing manual.

The 2017 UN transfer pricing manual includes one part that puts transfer pricing into an economic context; a second part provides substantive discussion of the arm’s length principle; a third part deals with administrative issues; and a fourth part deals with country practices, including practices in India, Brazil, China, South Africa, and Mexico, he said.

He noted that the new manual adds new chapters on intragroup services, intangibles, cost sharing agreements, and business restructuring.

Sollund said that the new intangibles chapter is aligned with OECD/G20 base erosion profit shifting (BEPS) plan transfer pricing work. He also said the UN model tax treaty’s commentary to Article 9 will be updated in 2017 to make it consistent with OECD transfer pricing work on intangibles. The UN and OECD use the same transfer pricing standards, he explained.

Sollund, who works for Norway’s Ministry of Finance in the Tax Law Department as Director-General, Head of International Tax Section, also noted that the 2017 UN transfer pricing manual includes updated guidance on transfer pricing documentation, including a discussion of country-by-country reporting.

He added that a new section on transfer pricing methods describes use of the 6th method, applicable to pricing exports of commodities, which is employed in several Latin American countries. The manual neither approves or disapproves of the method, he said.

UN model tax treaty

The UN Committee also reached agreement on several items for a planned 2017 update to the UN model tax treaty during an April 3–6 session in New York.

Sol Picciotto, Emeritus Professor at Lancaster University and Senior Fellow at the International Centre for Tax & Development, said that the main achievement of the Committee of Experts during this session as was reaching final agreement on a new article allowing for withholding tax on payments for technical services. Changes agreed to during the meeting largely followed the tabled paper (E/C.18/2017/CRP.1), Picciotto said.

During the ECOSOC meeting, Luis Gomes Sambo, Head of the International Cooperation Department at Angola’s General Tax Administration, said the article on fees for technical services was needed and will provide developing nations with bargaining power. Under the current treaty, is very easy for multinationals to avoid Angola’s 6.5 percent withholding tax on technical services fees by avoiding a permanent establishment status in the country, he said.

Picciotto reported that agreement was also reached by the UN Committee on new text to address tax treaty abuse, combining a detailed limitation on benefits (LOB) provision based on the US model with a principal purpose test. In this respect, Picciotto said, the UN committee went further than the OECD in its multilateral instrument (MLI) to implement BEPS tax treaty provisions.

“The MLI does not have the full LOB, and the OECD is still working on a text, which I understand will be in the OECD Commentary as an option,” Picciotto observed.

Picciotto further noted that agreement was reached last week on Commentary to the UN model tax treaty concerning how the royalty article relates to the use of machinery. The software aspect of the royalties issue was not agreed to; it was decided that further work was needed, he reported.

Another important agreement, Picciotto said, concerned revising the UN model tax treaty article on international transport. These changes would bring the article in line with OECD provisions, he said.

Further, Picciotto said that agreement was reached on a provision on indirect transfers of land-rich companies.

Also, some changes were agreed to regarding the Commentary on Article 25 and approval was obtained for an outline for a revised Guide to the MAP (G-MAP), Picciotto said.

This work will continue to June, but the main issues of alternative dispute resolution and arbitration will be for the next UN Committee of Experts to resolve, he added. The membership of the UN Committee will change this summer.

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Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie can be reached at [email protected].

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