OECD releases draft update to Model Tax Convention

OECD today released a draft of the 2017 update to the OECD Model Tax Convention, which is used by many countries as a basis to negotiate bilateral tax treaties.

The OECD said that many of the draft changes have already been approved as part of the OECD/G20 base erosion profit shifting (BEPS) plan or have been previously released for comment.

The draft also includes several new provisions, for which comments are now requested by August 10. The OECD described the new changes as follows:

  • 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. That paragraph indicates that registration for the purposes of a value added tax 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, which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in the case where 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.

The draft, which was prepared by Working Party 1 of the OECD Committee on Fiscal Affairs (CFA), has yet to be approved by the full CFA or OECD Council.

The OECD also said that changes and additions will be made to the observations, reservations, and positions of OECD member countries and non-member economies, which will be included in the final version of the 2017 update.

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