1 2017 UPDATE TO THEOECD MODEL TAX CONVENTION !DOPTED BY THE /%#$ #OUNCIL ON 2 November 7 2 21 November 2017 THE 2017 UPDATE TO THE OECD MODEL TAX CONVENTION This note includes the contents of the 2017 UPDATE to the OECD MODEL Tax CONVENTION (the 2017 UPDATE ). The 2017 UPDATE was approved by the Committee on Fiscal Affairs on 28 September 2017 and by the OECD Council on 21 November 2017. The 2017 UPDATE primarily comprises changes to the OECD MODEL Tax CONVENTION (the OECD MODEL ) that were approved as part of the BEPS Package or were foreseen as part of the follow-up work on the treaty-related BEPS measures.
2 These changes include the following: Changes to the Title and Preamble of the OECD MODEL , as well as to its Introduction, and related Commentary changes contained in the Report on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances). The addition of new paragraph 2 to Article 1 (the transparent entity provision) and of related Commentary changes. These changes appear in Chapter 14 of the Report on Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements). The addition of new paragraph 3 to Article 1 (the saving clause ) and of related Commentary changes.
3 These changes appear in the Report on Action 6. Changes to the section of the Commentary on Article 1 on Improper use of the CONVENTION , which include optional provisions to deny treaty benefits with respect to income benefiting from special tax regimes and in cases of certain subsequent changes to the domestic law of a treaty partner after the conclusion of a tax treaty. Draft proposals for these optional provisions were included in the Report on Action 6, which noted that the proposals would be reviewed in the light of similar proposals which had been released by the United States for public comment in September 2015.
4 The optional provisions on special tax regimes and on subsequent changes to domestic law, as they appear in the 2017 UPDATE , were finalised accordingly. Changes to Articles 3 and 4, and related Commentary changes, concerning the treaty residence of pension funds. Paragraph 12 of the Report on Action 6 called for additional work to ensure that a pension fund should be considered to be a resident of the State in which it is constituted regardless of whether that pension fund benefits from a limited or complete exemption from taxation in that State.
5 On 29 February 2016 the Committee on Fiscal Affairs published a discussion draft containing proposed changes to Articles 3 and 4 and their Commentaries. Changes to paragraph 2 of Article 3 and related changes to the Commentaries on Articles 3 and 25. The Report on Action 14 (Making Dispute Resolution Procedures More Effective) called for the development of these changes which are intended to remove any doubt that, in a case where the competent authorities have agreed on a common meaning of an undefined term, the domestic law meaning of that term would not be applicable as part of the follow-up work on Action 14 to clarify the legal status of a competent authority mutual agreement.
6 Changes to paragraph 3 of Article 4 (the tie-breaker rule for determining the treaty residence of dual-resident persons other than individuals) and related Commentary changes. These changes appear in the Report on Action 6. Changes to Article 5 and its Commentary resulting from the Report on Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and follow-up work on those changes. Changes to subparagraph 2 a) of Article 10, introducing a minimum holding period to access the 5 per cent rate applicable to dividends, and related Commentary changes.
7 These changes appear in 3 the Report on Action 6. The replacement of paragraph 17 of the Commentary on Article 10 with a paragraph containing analternative provision that would deny the benefit of the lower rate provided in Article 10(2) a) tocertain collective investment vehicles that do not pay tax on their investment income. Thatalternative provision was contained in the Report on Action 6. Changes to paragraph 4 of Article 13, addressing transactions that seek to circumvent theapplication of that provision, and related Commentary changes.
8 These changes appear in theReport on Action 6. Changes to Articles 23 A and 23 B and related changes to the Commentaries on Articles 10, 11,21, and 23 A and 23 B. These changes address issues relating to the relief of double taxation thatarose during the work on new paragraphs 2 and 3 of Article 1. Draft proposals for certain of thesechanges were included in the Report on Action 6. Changes to Article 25 and to the Commentaries on Articles 2, 7, 9 and 25 contained in the Reporton Action 14 or which that Report indicated would be developed as part of the follow-up work onAction 14.
9 These changes include changes to paragraph 5 of Article 25, related Commentarychanges and amendments to the Sample Mutual Agreement on Arbitration contained in anAnnex to that Commentary. The changes related to the OECD MODEL MAP arbitration provisionand its Commentary are intended to reflect the MAP arbitration provision developed in thenegotiation of the Multilateral CONVENTION to Implement Tax Treaty Related Measures to PreventBase Erosion and Profit Shifting (the Multilateral Instrument or MLI ) adopted on 24 November2016.
10 The addition of a new Article 29 (Entitlement to Benefits) and related Commentary, whichincludes in the OECD MODEL a limitation-on-benefits (LOB) rule (simplified and detailedversions), an anti-abuse rule for permanent establishments situated in third States, and a principalpurposes test (PPT) rule. These provisions were contained in the Report on Action 6. As noted inthat Report, the two versions of the LOB rule and the anti-abuse rule for permanent establishmentssituated in third States as presented in the Report were draft provisions subject to changes, in thelight of the versions of those rules that would be included in the 2016 United States MODEL IncomeTax CONVENTION , which had not been finalised at the time the Report on Action 6 was provisions, as they appear in the 2017 UPDATE , have been finalised accordingly.