The OECD on April 6 released public comments to a discussion draft intended to clarify residence of pension funds under tax treaties.
The discussion draft, part of follow-up work for Action 6 of the OECD/G20 base erosion profit shifting (BEPS) plan, would update the OECD Model Tax Convention, used as model for OECD countries when negotiating tax treaties or designing their own tax treaty models.
The provision will also be included in the multilateral convention to implement the BEPS plan, along with other Action 6 work involving treaty changes.
In general, the OECD discussion draft provides that, for purposes of tax treaties, a pension fund is considered to be a resident of the state in which it is formed. The draft provided a definition of a “recognized pension fund” and invited comments on several phrases contained in that definition.
Several commentators suggested that the OECD eliminate or modify the requirement that, to qualify as a “recognised pension fund,” an entity or arrangement be a “separate person” for tax purposes in the state where it is established.
The Association of British Insurers was among commentators that noted that the pension business of a UK insurance company can not satisfy the definition, and asked that the provision be modified.
In separate letters, the Irish Tax Institute said that some Irish funds would not meet the “separate person” requirement, the Association of the Luxembourg Fund Industry said some Luxembourg funds would not qualify, and the Association of Global Custodians said that a contractual trust arrangement set up by employers under German law to fund pension benefits to employees would not qualify.
The Association of Global Custodians was also among several commentators that argued that it would be too restrictive if the definition of a recognised pension fund only included funds operated “exclusively” to administer or provide retirement or similar benefits.
The BEPS Monitoring Group, an association tax justice campaigners, said that it would be useful to provide examples of payments or investments that do not qualify as “similar benefits” to discourage treaty abuse. An example would be entities that are set up for only one individual beneficiary, the group said.
Some commentators, including the 1818 Society, said that the definition of a recognised pension fund should be extended to specifically include pension funds established by international organizations.
Also commenting were: The Association of Superannuation Funds of Australia (ASFA), ATP, The British Bankers Association, The Chartered Institute of Taxation, The Danish Insurance Associations, Deloitte, EPF, Federation Bancaire Francaise, The Federation of the Dutch Pension Funds, FIDAL, The Global Pension Fund Coalition, ICAEW, IFA Mexico, ILAG, INVERCO, Investment Associatione, Legal & General, Mazars Global Tax Policy, MN, NN Investment Partners, Pensions Europe, and EFAMA, PricewaterhouseCoopers International Limited.
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