Draft contents of the update to the OECD Model Tax Convention released

The OECD Committee on Fiscal Affairs has released the draft contents of the 2017 update to the OECD Model Tax Convention. Significant parts of the update were already approved and released as part of the BEPS Package. The update will be submitted for the approval of the Committee on Fiscal Affairs and of the OECD Council later in 2017. This draft therefore does not necessarily reflect the final views of the OECD and its member countries.

Public comments were already received with respect to certain parts of the 2017 update that have not been part of the BEPS Package. These changes are as follows:

• Changes to paragraph 13 of the Commentary on Article 4. These changes are intended to clarify the meaning of “permanent home available to” in the tie-breaker rule in Article 4(2) a). The draft adds to the Commentary clarifying language that explains a home is no longer available to the individual if rented to an unrelated party so that the individual is not in possession of the home and cannot stay there.
• 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) b) and c). The draft update clarifies that the determination period must cover a sufficient length of time to ascertain the frequency, duration, and regularity of stays that are part of the settled routine of an individual’s life.
• 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 Article 10(2) a), which is intended to ensure that the reduced rate of source taxation on dividends 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.

Finally, we would like to note that the changes and amendments which had been already approved as a part of the BEPS Package will be included in the draft contents of the 2017 update. This is mainly the following: neutralizing the effects of hybrid mismatch arrangements, preventing the granting of treaty benefits in inappropriate circumstances, artificial avoidance of permanent establishment status and mutual agreement or arbitration.