UN Tax Committee Proposes To Update The Model Tax Treaty

; posted on
April 5th, 2019

The UN Committee of Experts on International Cooperation in Tax Matters published several documents in tax matters. Two of the documents are discussing possible updates to the UN Model Double Taxation Convention between Developed and Developing Countries commentary on permanent establishments and beneficial ownership.

Permanent Establishment

UN tax committee is proposing updates to the commentary of Article 5 (permanent establishment) to reflect changes that were incorporated into the 2017 OECD Model Commentary. The changes include the following:

  • No distinction should be made when applying Article 5 based on whether or not the facts and arrangements relevant to the determination of a PE resulted from a business restructuring, and that the universal concepts should apply, namely – are the premises of the local entity at the disposal of the foreign enterprise and is the business of the foreign enterprise carried on through the local entity.
  • Guidance to the concept of a place of business should be at the disposal of an enterprise.
  • Guidance on when the home office of an employee could constitute a PE of an enterprise.
  • Guidance of how and when activities of a recurring nature constitute a fixed place of business.
  • Clarification regarding the issue of when an enterprise should be considered as carrying on its business through the activities of subcontractors.
  • Clarification regarding the issue of when two enterprises that may be collaborating in a business capacity should be viewed as creating a single enterprise of a Contracting State.
  • Guidance about how Article 5 will apply in the case that a foreign enterprise subcontracts some or all parts of a contract to other enterprises.
  • Guidance about how to count days for the purpose of determining if a construction site constitutes a PE.

Beneficial Ownership

The subcommittee paper presenting a high-level discussion of the issue of beneficial ownership was also released. The paper notes that in 2014 beneficial ownership was clarified in the OECD model treaty. The paper considers whether an update should also be provided in the UN treaty within article 10, 11, and 12.

The documents will be discussed during the 18th session of the Committee, which will be held 23 to 26 April 2019.

Source: United Nations

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