Tax treaties

OECD approves the 2010 Update to the OECD Model Tax Convention


22 July 2010 -- The OECD Council has today approved the 2010 Update to the OECD Model Tax Convention.


The contents of this update were previously released as a draft on 21 May 2010 and, after a few changes, including changes to the observations, reservations and positions of the OECD members and non-members, the update was approved by the Committee on Fiscal Affairs on 22 June before being presented to the Council for final approval.


One of the most important parts of the 2010 update to the Model Tax Convention is the replacement of Article 7 of the Model Tax Convention and its Commentary (see the revised discussion draft of a new Article 7 of the OECD Model Tax Convention released on 24 November 2009). The new text reflects the full results of the work of the Committee on Fiscal Affairs on the attribution of profits to permanent establishments, and a 2010 version of the Report on the Attribution of Profits to Permanent Establishments was therefore also adopted by the OECD Council today in order to reflect the replacement of Article 7 in the Model Tax Convention (this new version is an updated version of the report adopted in 2008 which takes account of the new wording of the Article without any substantive changes to the conclusions of the report).


The other changes to the Model Tax Convention that are included in the 2010 update result essentially from the work of the Committee on the following issues:


The update also includes changes made by a number of members and non-members to their observations, reservations or positions on the OECD Model Tax Convention. These changes include in particular the elimination, previously approved by the OECD Council, of all the reservations and positions contrary to the international tax standard on exchange of information that is incorporated in Article 26 (Exchange of Information).


New positions by Indonesia, the United Arab Emirates and Hong Kong, China are also added to the Model Tax Convention through this update. Thus today there are 31 non OECD economies that have set out their positions on the Model.


In addition, a footnote to the observations included in the Commentary on Article 5 has been deleted. In that footnote, France, Spain, Sweden, Switzerland and the United States expressly stated that they agreed with the Committee's conclusions set out in paragraphs 42.11 to 42.13 of the Commentary (which deal with the taxation of services) and did not share the views of some States expressed in paragraphs 42.14 to 42.17. The footnote was deleted because it did not constitute an “observation” as this term is understood for the purposes of the Model Tax Convention and, in fact, simply reflected the position of the Committee on Fiscal Affairs. Clearly, therefore, the deletion of the footnote does not reflect any change in the position of the above-mentioned States.


As part of the update, the Report on the Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles, which was approved by the Committee on 23 April 2010, will be added to the section of Volume II of the electronic and loose-leaf versions of the OECD Model Tax Convention that includes reports on the Model Tax Convention. Also, Appendix I of Volume II, which lists the status of tax conventions between OECD countries, will be replaced as a result of the revision and conclusion of new treaties since 2008.


A revised condensed version of the OECD Model that will include the changes resulting from the update will be published in September 2010.