2014 OECD Model Tax Convention and Commentary

2014 OECD Model Tax Convention and Commentary

Wed 03 Sep 2014

On 1 September 2014, the Organization for Economic Co-operation and Development (the OECD) published the condensed version of the OECD Income and Capital Model Convention and Commentary 2014 (2014 Update). This is the ninth edition of the condensed version of the publication entitled Model Tax Convention on Income and on Capital, first published in 1992 and periodically updated since then.  The 2014 Update was approved by the OECD Council on 15 July 2014 and had been approved by the OECD’s Committee on Fiscal Affairs on 26 June 2014. The 2014 Update summarises the work carried out by the Committee of Fiscal Affairs between 2010 and the end of 2013.

This condensed version includes the text of the Model Tax Convention as it read on 15 July 2014 after the adoption of the ninth update by the Council of the OECD. Historical notes included in Volume I of the full version as well as the detailed list of tax conventions between OECD member countries and the background reports that are included in Volume II of the full version have not been reproduced in this version. The full text of the 2014 OECD Model Tax Convention and Commentary can be read on the following website.

The 2014 Update includes the following:

–          The clarification of the definition of the term of beneficial owner

The 2014 Update includes changes which were reflected in the revised proposals concerning the meaning of “beneficial owner” in articles 10, 11 and 12 of the OECD Model (2010) issued by the OECD Committee on Fiscal Affairs (CFA) on 22 October 2012. This proposal is based on the comments received on public discussion draft entitled Clarification of the meaning of “beneficial owner” in the OECD Model Tax Convention (released on 29 April 2011).

Amongst other, paragraph 12.4 was introduced to clarify why agents, nominees and conduit companies acting as a fiduciary or administrator are not beneficial owners. The “full right to use and enjoy” income test was amended with the “right to use and enjoy” test.

 “12.4 … the direct recipient of the dividend is not the “beneficial owner” because that recipient’s right to use and enjoy the dividend is constrained by a contractual or legal obligation to pass on the payment received to another person. Such an obligation will normally derive from relevant legal documents but may also be found to exist on the basis of facts and circumstances showing that, in substance, the recipient clearly does not have the right to use and enjoy the dividend unconstrained by a contractual or legal obligation to pass on the payment received to another person. This type of obligation would not include contractual or legal obligations that are not dependent on the receipt of the payment by the direct recipient such as an obligation that is not dependent on the receipt of the payment and which the direct recipient has as a debtor or as a party to financial transactions, or typical distribution obligations of pension schemes and of collective investment vehicles entitled to treaty benefits under the principles of paragraphs 6.8 to 6.34 of the Commentary on Article 1. Where the recipient of a dividend does have the right to use and enjoy the dividend unconstrained by a contractual or legal obligation to pass on the payment received to another person, the recipient is the “beneficial owner” of that dividend. It should also be noted that Article 10 refers to the beneficial owner of a dividend as opposed to the owner of the shares, which may be different in some cases.”

It was considered that the meaning of “beneficial owner” as used in the Model, should be interpreted as its treaty content, and should not to refer to any technical meaning that it could have had under the domestic law of a specific country.

–          Revised discussion draft on tax treaty issues related to emission permits and credits

The 2014 Update reflects the discussion draft issued on 19 October 2012

–          Changes on the treatment of sportsmens and entertainers (Article 17)

The 2014 Update reflects changes which was discussed and detailed in the Report on Issues related to Article 17 of the OECD Model Tax Convention.

–          Treatment of termination payments

–          Changes to Article 26, Exchange of Information

–          New reservations from countries that had not been previously included (for example such as Chile, Israel, Estonia and Turkey)

–          Section on positions of non-OECD member countries (such as Azerbaijan, Colombia, Georgia, and Singapore)

2014 Update and BEPS

The 2014 Update does not incorporate any changes to the OECD Model deriving from the ongoing work on the BEPS Action Plan. Therefore, changes proposed in the discussion draft of 19 October 2012 on Revised proposals concerning the interpretation and application of Article 5 (Permanent Establishment). The outcome of the work on Action 7 (Prevent the Artificial Avoidance of Permanent Establishment Status) of the BEPS Action Plan may result in further changes of the Commentary.

Comments

2 responses to “2014 OECD Model Tax Convention and Commentary”

  1. Dear Renata,

    Thank you for sharing this blog. It is very well written and useful summary. Shall I subscribe your blog update? so i will receive an automatic email asap.

    I am very much looking forward to your next blog post.

    Best wishes,
    Naila

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