Tax treaties

OECD Model Tax Convention: Discussion draft on the tax treaty treatment of termination payments


25/06/2013 - The OECD Committee on Fiscal Affairs (CFA) invites public comments on a discussion draft on the tax treaty treatment of various payments that may be made following the termination of an employment. The analysis and suggestions included in this discussion draft address the application of the provisions of the OECD Model Tax Convention when such payments are made in cross-border situations.

The limited guidance currently included in the Commentary of the OECD Model Tax Convention concerning such payments deals exclusively with the extent to which they constitute “pensions or other similar remuneration”.  It does not address how other provisions, such as Article 15, apply to a variety of payments, such as non-competition payments, that may be made following the termination of an employment.  Since the inconsistent treaty characterisation of payments received following the termination of employment creates risks of double taxation and non-taxation, the OECD Committee on Fiscal Affairs, through a subgroup of its Working Party 1 on Tax Conventions and Related Questions, has undertaken work aimed at clarifying how such payments should be treated for tax treaty purposes.

This public discussion draft includes proposals for additions and changes to the Commentary on the OECD Model Tax Convention resulting from the work of that subgroup.  These proposals have recently been presented to the Working Party for discussion with a view to their possible inclusion in the OECD Model Tax Convention.  Given the fact that the proposals included in this note relate to a variety of payments that may be made to a large number of individuals, the Working Group concluded that its discussion of these proposals would benefit from the views and experience of interested parties and, in particular, of people and organisations (including advisers and representatives from human resources departments) who regularly deal with the tax situation of employees who exercise employment activities in different countries.

The Committee therefore invites interested parties to send their comments on this discussion draft before 13 September 2013.  These comments will be examined at the September 2013 meeting of the Working Party. 

Comments on this discussion draft should be sent electronically (in Word format) by email to [email protected] and should be addressed to:

            Tax Treaties, Transfer Pricing and Financial Transactions Division

Unless otherwise requested at the time of submission, comments submitted in response to this invitation will be posted on the OECD website.

This document is a discussion draft released for the purpose of inviting comments from interested parties. It does not necessarily reflect the final views of the OECD and its member countries.


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