UN committee weighing major updates to model tax treaty, other guidance

by Julie Martin

The UN Committee of Experts on International Cooperation in Tax Matters has released several documents outlining proposals that the committee will consider during its 14th session, which began today in New York.

The papers reveal that significant changes to the United Nations Model Double Taxation Convention between Developed and Developing Countries (UN model tax treaty) and other UN tax initiatives are under review in areas such as transfer pricing and tax dispute resolution.

The four-day committee meeting will be followed by a UN ECOSOC special meeting on international cooperation in tax matters, where the 2017 UN Practical Manual on Transfer Pricing for Developing Countries is slated to be presented and officially launched.

Included in today’s release is a new draft guidance note that addresses transfer pricing issues related to the production of oil and natural gas and mining and minerals extraction. The note, prepared by a subcommittee, is proposed for inclusion in the UN’s “Handbook on Selected Issues in the Taxation of the Extractive Industries for Developing Countries,” to be launched this October.

The Committee of Experts will also consider at the meeting the extent to which the outcomes of the OECD/G20 base erosion and profit shifting (BEPS) project should be incorporated in UN work.

A report of the Base Erosion and Profit Shifting Subcommittee offers recommendations on the incorporation of proposed amendments relating to permanent establishments and the possible inclusion of a principal purpose test or limitation on benefits clause in UN model tax treaty.

Another subcommittee report recommends changes to the UN model tax treaty based on BEPS action 14 outcomes, dealing with dispute resolution, but recommends further clarification and elaboration. For example, according to the report, like the OECD model, the UN model should make it clear that countries have an obligation to attempt to resolve a case through the mutual agreement procedure. The report goes on to recommend, though, that the UN model add language clarifying that there is no obligation to reach agreement.

A report of the Subcommittee on Mutual Agreement Procedure proposes new text for the UN Model on non-binding dispute resolution procedures, provides an outline for a proposed new handbook on dispute resolution, discusses the process to take forward the incorporation of BEPS action 14 into the UN Model, and a proposes significant updates to the UN Guide to the Mutual Agreement Procedure under Tax Treaties.

A Subcommittee on Royalties report recommends new proposed commentaries to Article 12 in relation industrial, commercial and scientific equipment and software-related payments. Four separate papers address the issue of fees for technical services or included services.

A report prepared by the Swedish Ministry of Finance discusses the country’s experiences with a carbon tax and offers to follow up with further recommendations to developing nations on establishing environmental taxes.

The following documents were released:

• Presentation by OECD representative on OECD Model changes relating to international traffic and possible similar changes to the UN Model (E/C.18/2016/CRP.17) – Agenda item 3 (a) (i)

• Revised Commentary on Article 12A: Fees for Technical services (E/C.18/2017/CRP.1)

• Proposed Addition to the Commentary on Article 12: Fees for Included Services (E/C.18/2017/CRP.2)

• Annex II: Changes to the UN Model Deriving from the Report on BEPS Action Plan 14 (E/C.18/2017/CRP.4.Annex 2)

• Amendments to the Articles of the United Nations Model Convention Consequential on the Addition of Article 12A (Fees for Technical Services) (E/C.18/2017/CRP.3)

• Coordinator’s Report on Work of the Subcommittee on the Mutual Agreement Procedure—Dispute Avoidance and Resolution (E/C.18/2017/CRP.4)

• Possible amendments to the commentary on Article 12 (Royalties) in relation to: (i) commercial, industrial and scientific equipment; or (ii) software related payments (E/C.18/2017/CRP.5)

• Carbon taxation – an instrument for developing countries to raise revenues and support national climate policies (E/C.18/2017/CRP.6)

• Proposed Base Erosion and Profit-Shifting Related Changes to the United Nations Model Double Taxation Convention between Developed and Developing Countries (E/C.18/2017/CRP.7)

• New Article 29 (Entitlement to Benefits) of the UN Model and its commentary (E/C.18/2017/CRP.8)

• Transfer Pricing Issues in Extractive Industries (E/C.18/2017/CRP.9)

• Changes to the UN Model Double Taxation Convention Dealing with the Operation of Ships and Aircraft in International Traffic (E/C.18/2017/CRP.10)

• Secretariat note (E/C.18/2017/CRP.11)

• Proposed Modifications to Article 12 (6) (E/C.18/2017/CRP.13)