The OECD has released seven comment letters responding to draft revisions to the OECD model tax convention. The revisions are to be included in a 2017 update to the convention which is expected to be approved later this year.
The draft update, proposed by Working Party 1 of the OECD Committee on Fiscal Affairs and released for comment July 11, recommends extensive revisions to the OECD model tax convention. The OECD asked stakeholders to only comment on four narrow changes, though, because the rest of the update reflects agreements already reached by nations as a part of the 2015 OECD/G20 base erosion profit shifting (BEPS) plan.
Commentators mostly focused on a proposed new paragraph to the Commentary to Article 5 of the Convention which states that registration of a foreign enterprise under VAT/GST, by itself, is irrelevant to applying and interpreting the Convention’s permanent establishment definition.
This draft provision was supported by the OECD Business and Industry Advisory Committee (BIAC), the International Chamber of Commerce (ICC), the US Council for International Business (USCIB), and the BEPS Monitoring Group.
Writing on behalf of BIAC, Alan McLean said that the OECD should add a cross reference in the Commentary to similar language which expresses the same view in the OECD VAT Guidelines and the BEPS Action 1 Final Report. The ICC and the USCIB agreed with this suggestion
The ICC said that a cross reference to the new model convention language should also be included in the VAT/GST Guidelines when they are updated. The USCIB suggested additional language to further clarify the provision.
Jeffery Kadet, Sol Picciotto, and Tommaso Faccio of the BEPS Monitoring Group also supported commentary language, but said that voluntary or required registration for VAT/GST will continue to be a helpful signpost for local country tax authorities to be alerted to the potential of a permanent establishment.
The BEPS Monitoring Group, comprised of tax experts that campaign for tax justice, also agreed with the OECD working group’s proposed deletion of the parenthetical reference “other than a partnership” from subparagraph 2 (a) of Article 10.
Further, the BEPS Monitoring Group expressed support for proposed changes that would clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c), calling the clarifications “long overdue.”
The OECD also released comment letters from Maisto e Associati and Robert Robillard of RBRT Inc.. A joint letter prepared by AFG (Association Française de la Gestion financière), AFIC (Association Française des Investisseurs pour la Croissance), and ASPI (Association française des Sociétés de Placement Immobilier was also released.
