The OECD Releases 2017 Full Version of Model Tax Convention

On April 25, 2019, the OECD released the 2017 full version of the Model Tax Convention on Income and on Capital (“MTC”). The newest release includes the full text of the MTC as it was released on November 21, 2017, with additional information including articles, commentaries, non-member economies’ positions, recommendations of the OECD Council and background reports.

The document is intended to be used as a starting point for tax treaty negotiations between jurisdictions. This article provides an outline of information pertaining to Article 5: Permanent Establishment, Article 7: Business Profits and Article 25: Mutual Agreement Procedure.

Specific to each Article, the Full Model Tax Treaty is structured in the following manner:

Article Text
The full text is listed for each Article. The language is often short and concise, so the additional information on changes from versions and additional commentary can be very useful.

History
Below each Article is a detailed list of changes made from the original 1977 MTC and the source of these changes. Readers will be able to identify the changes made to the 2017 MTC, particularly the changes captured from the OECD Base Erosion and Profit Shifting (BEPS) project, and specifically Action 7 – Preventing the Artificial Avoidance of Permanent Establishment Status.

OECD Commentary
The OECD also includes detailed commentary related to each paragraph or clause in the Article, including examples and other considerations.

Non-OECD Members Positions
Commentary from certain non-OECD members include commentary and areas of disagreement for each paragraph of an Article. This section is especially useful when reviewing the positions of non-OECD member countries on detailed aspects of a particular Article.

Previous Reports Related to the Model Tax Convention
The OECD also includes previous reports authored by the OECD that are relevant to the MTC.

The exhibit below summarizes the information pertaining to Articles 5, 7 and 25 in the Full MTC, including a reference of the section/page number (electronic version).

Article

Changes

OECD Commentary

Non-OECD Member Positions

5 – Permanent Establishment (PE) (M-19/ page 49)

Definition of PE and instances in which an enterprise may or may not have a PE

Section M-21/page 51

  • 4.1 - Addition of an anti-fragmentation clause;

  • 5 - Definition of a related enterprise

  • 8 - Definition of a related enterprise

Section C(5)/ page 293

 
Section P(5)/ page 1531

7 – Business Profits (M-27 / page 56)

Business profits may only be taxed in a State unless it has a permanent establishment situated in another state. This Article also outlines the attribution of profits of a PE, which should be in accordance with the OECD transfer pricing guidelines.

Section M-27/page 57

No changes to Article 7 from the prior Model Tax Treaty

Section C(7)/ page 453

Section P(7)/ page 1575

25 – Mutual Agreement Procedure (M-68 / page 98)

The procedure in which a person may pursue competent authority if it is believed that taxation is not in accordance with the agreed provisions.

  • 1 – Competent authority relief is possible in either country (not just resident country)

  • 5 – Changes to arbitration rules 

Section C(25)/ page 1179

Section P(25)/ page 1677

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