OECD Model Research Articles

Is There an International Minimum Standard on Tax Treaty Shopping after BEPS Action 6? Some Recent Divergent Trends

BEPS Action 6 established a “minimum international standard” to fight against tax treaty shopping, in particular by proposing to add article 29(9) of the OECD Model (2017) (the so-called principal purpose test, PPT) to tax treaties. This article explains why the PPT is susceptible to be interpreted differently across the world and, especially, shows that this outcome is very likely to materialize in view of some administrative and judicial decisions in different countries in 2021 in very relevant tax treaty shopping cases. Further tensions are added by the recent proposal for a directive by the European Commission against the use of shell companies since it is not in line with the BEPS Action 6 minimum standard. In essence, it is argued that the BEPS Action 6 minimum standard needs to be complemented with some further actions if the goal is to have a real and homogeneous anti-tax treaty shopping international standard and more legal certainty.

The OECD/G20 Global Minimum Tax and Dispute Resolution: A Workable Solution Based on Article 25(3) of the OECD Model, the Principle of Reciprocity and the GloBE Model Rules The authors wish to thank the anonymous peer reviewers for their comments as well as the editor-in-chief of the World Tax Journal, Professor Pasquale Pistone, for the opportunity to publish in this

The implementation of the G20/OECD global minimum tax (“GloBE”) raises an immediate and practical challenge in terms of dispute resolution. On the one hand, the GloBE framework will require an unprecedented degree of coordination between jurisdictions with naturally a high potential for bilateral and multilateral disputes. On the other hand, it is foreseen that the GloBE rules will not be incorporated into a Multilateral Convention. Rather, the GloBE architecture will be exclusively transposed into domestic laws through so-called “model rules”. Therefore, at least in an initial phase, no ad hoc international binding dispute resolution mechanism will be available to solve GloBE disputes. In order to address this pressing challenge, this article proposes a readily workable solution to solve GloBE disputes without the need for a Multilateral Convention. The model advocated here consists in a (i) reinforced interpretation of article 25(3) second sentence of the OECD Model on the basis of a subsequent practice (article 31(3)(b) of the VCLT), (ii) a domestic dispute resolution mechanism incorporated into the model rules and mirroring article 25(3) of the OECD Model which would also (iii) apply to non-treaty situations on the basis of the principle of reciprocity and which would (iv) rely on the Convention on Mutual Administrative Assistance in Tax Matters. The authors find that the proposed framework is particularly in line with the object and purpose of the GloBE Model Rules which are to operate between jurisdictions as “mirror legislations” and in a synchronized fashion. This solution may also be combined with other mechanisms currently discussed to simplify and enhance the certainty of the GloBE framework for both MNE groups and tax administrations.

The Global Minimum Tax: Some Known Unknowns

In order to address the fundamental challenges for the international tax regime brought about by the digitalization of the economy and new forms of potentially harmful tax competition, the G20 summit of October 2021 called for a commitment to the implementation of the Global Minimum Tax Proposal developed by the OECD within the framework of the Two-Pillar solution, aiming at 2023 as an implementation deadline. The breadth and technical complexity of the OECD Model Rules and the OECD Guidelines, as well as the Directive Proposal released by the EU Commission in December 2021, offer several inputs for further reflection, also considering the evolving international policy and political framework. The main purpose of this contribution is to highlight the most pivotal “known unknowns” of the proposed set of measures so as to stimulate further debate on the topic.

Aplication of tax residence signs by The State Tax Service of Ukraine

The article is devoted to the study of the issue of application of tax residency signs by the State Tax Service of Ukraine. The relevance of this issue is due to the ambiguity of approaches to the application of such signs to the definition, confirmation or deprivation of the status of a tax resident of Ukraine and further application of the mechanism of taxation of such a person. Incorrect determination of the residency may become an obstacle on the way of Ukraine joining the Single Standard for Automatic Exchange of Tax Information, as well as result in the increase of the number of law suits to the State Tax Service of Ukraine. A number of general scientific and special scientific methods, in particular, comparison, generalization, dialectical and formal-legal method, as well as system and complex analysis constitute the methodological basis of the study. The article analyzes tax residency signs, applied in international and national legislation, judicial practice of application of tax residency signs, as well as possible ways of their application by the State Tax Service of Ukraine. It has been proved that in determining a natural person as a resident/non-resident the State Tax Service of Ukraine should apply the following attributes: 1) general (applied consecutively) – permanent residence, centre of vital interests, habitual residence, citizenship; and 2) special – provisions stipulated by international treaties for determining tax residency. The attribute of centre of vital interests is recommended to be used by the State Tax Service of Ukraine as the basic one by means of questionnaires for individuals. The necessity to introduce amendments and additions into the legislation concerning the clear determination of ways of application of the signs of tax residency by the STS of Ukraine has been revealed. It should meet the requirements of the OECD Model Convention, as well as expand the powers of the STS of Ukraine concerning the possibility to grant, change or recognize an individual as no longer having the status of a resident.

Конфіденційність податкової інформації, що підлягає автоматичному обміну: імперативи забезпечення

OECD governments are working together to address important issues of rapid response to the use of aggressive tax planning and transfer pricing by multinational entities (MNE). Activities in the area of transfer pricing lead to the erosion of the tax base – the state does not receive adequate tax revenues. World practice shows that transfer pricing needs to be regulated. The OECD provided recommendations, including on the establishment of mechanisms for the administration of transfer pricing, the definition of basic requirements for documentation on transfer pricing and the exchange of tax information. As a result of the involvement of more and more countries in the global exchange of tax information, in recent years the problems of ensuring the confidentiality of information to be exchanged have become important. The OECD provides governments with the opportunity to share experience, identify best practices and coordinate activities in the context of the mentioned issue. Ukraine is actively involved in these processes, which highlight the introduction of a number of tools to establish the functioning of international automatic exchange and ensure the confidentiality of tax information. The latter causes further implementation of relevant OECD model legislation. The analysis of international approaches and best practices for ensuring confidentiality and an appropriate level of protection of information exchanges between OECD member states on the issues of the BEPS Action Plan implementation and identification of imperatives for their application are performed. The research is based on a synthesis of general scientific methods, methods of comparison, institutional analysis and empirical approach. The OECD recommendations and the national legislation of certain countries, which contain provisions for ensuring confidentiality and protection of tax information to be exchanged are summarized and systematized. According to the results of the study, various tax administrations are guided by the recommendations of the OECD model legislation within the development of a mechanism to ensure the necessary level of confidentiality and effective protection of tax information to be exchanged. But there are some national pecularities and obstacles for implementation of OECD model legislation.

Comparison of the Substantive Aspects of Impermissible Tax Arrangements in South Africa’s General Anti-Avoidance Rule and the Principal Purpose Test in the OECD Model (2017)

This article compares the substantive aspects of impermissible tax arrangements in the South African general anti-avoidance rule and the Principal Purpose Test set out in article 29 of the OECD Model (2017), with emphasis on an evaluation of the examples in the Commentary on Article 29 of the OECD Model (2017).

Treaty-Based Nondiscrimination: Now You See It Now You Don't

A broad nondiscrimination provision appears in every income tax treaty that the United States has entered into in the last quarter century. The nondiscrimination article of these treaties purports to prohibit discriminatory taxes levied against foreign nationals or their businesses. However, some distinctions have always been permitted, based on the fact that domestic and foreign taxpayers are not similarly situated because different taxing jurisdictions are concerned. The problem is that it is difficult to articulate a consistent and rational standard to apply to determine when proscribed discrimination is present.The language used in a typical U.S. nondiscrimination provision, such as Article 24 of the 1981 U.S. Model Income Tax Treaty (the "1981 U.S. Model"), can be traced to the 1963 draft model convention published by the Organization for Economic Cooperation and Development Committee on Fiscal Affairs, Draft Double Taxation Convention on Income and on Capital (the "1963 OECD Model"). The 1977 draft of the Organization for Economic Cooperation and Development Model Double Taxation Convention on Income and on Capital (the "1977 OECD Model") includes a similar provision as its Article 24. Both the 1963 OECD Model and the 1977 OECD Model have been instrumental in guiding development of the language of bilateral income tax treaties. Copies of Article 24 of the 1981 U.S. Model and of Article 24 of the 1977 OECD Model are attached as Appendix A and Appendix B.

Understanding the OECD Model of Tax Convention: The Lesson of History

An important recent development in international taxation is the publication of the OEEC (the forerunner of the OECD when it was a purely European organization, although representatives from the United States and Canada were also present at the discussions on tax treaties) archives on the development of tax treaties in a website http://www.taxtreatieshistory.org/ organized by the Institute for Austrian and International Tax Law, Vienna, IBFD, Universith Cattolica del Sacro Cuore, Piacenza, Italy, IFA Canadian Branch and the Canadian Tax Foundation. While this may sound like a rarefied topic, the OEEC period from 1956 to 1961 is the story of the making of the current OECD Model. Previously there was a gap in the published sources after the end of the League of Nations Mexico and London Models of 1943 and 1946, which suffered from the wartime domination by the South Americans of the Mexico Model, and the Europeans doing what they could in the London Model to reverse some of the worst excesses. By the time of the OEEC it was accepted that this was not the way of the future. After the London Model there was previously a complete gap in the history until the publication of the 1963 OECD Draft, which is essentially the OECD Model as we have it today. True there have been many changes in the meantime, particularly to the Commentary, but when compared to the whole edifice these are merely tinkering. The 1963 OECD Draft seemed to have arrived from nowhere and one wondered how this arose. Now, with the publication of the OEEC archives, we know. It was the work of (ultimately) 15 Working Parties (plus another dealing with estate taxes) of the Fiscal Committee each comprising delegates from two countries working on a separate article of the Model and reporting to the other countries at regular meetings of the Fiscal Committee. The results were most impressive and one can trace how the articles developed. The minutes are available as transcribed versions in English and French together with a pdf file of the original minutes so that, for example, alterations can be seen. A few of the current problems can be traced to the technique of working on each article separately with, for example, the definitions article being started late and not being published in any of the Fiscal Committee's four reports. In that respect the League of Nations method of working was superior. For example, the other income article, which is effectively the general rule that had come first in the original League of Nations drafts, appears at the end because Working Party 14 started much later. I believe that we still have a mutual agreement provision in the tie-breaker for individuals because that article was drafted before the mutual agreement article. In addition some of the less obvious overlaps were not considered.

“Work on the Move”: Rethinking Taxation of Labour Income under Tax Treaties

Labour, in all its dimensions, has been “on the move” in the last few years. Before the pandemic, labour mobility has mostly interested only a fraction of the working population, such as highly skilled and high-net-worth individuals. COVID-19 has, however, expanded the extent of labour mobility and the categories of workers involved. This contribution discusses four major changes in labour patterns: (i) home office work; (ii) non-standard forms of employment; (iii) digital nomadism; and (iv) the decentralization of jobs. In particular, the article illustrates how a “work-from-anywhere” scenario may impact the taxation of labour income under tax treaties. Using mainly the OECD Model as a reference, the article discusses difficulties related to the application of physical presence as a sourcing rule for employment income, the distinction between dependent and self-employment income, and the concepts of home office and fixed base. Based on the analysis provided, the author formulates tentative proposals for reforming the current tax treaty treatment of labour income. Specific recommendations include the introduction of a new article jointly dealing with the taxation of labour income, a reviewed scope of application of the physical presence criterion and tax treaty definitions of home office and fixed base.

The Arm's Length Principle and Equity Dispositions: The Case of Thick Capitalization – Part 2

The arm's length principle has existed for more than 100 years, and a large number of equity dispositions have been undertaken for even longer. Still, neither the OECD nor the Norwegian legislator has ever suggested that the arm's length principle can be applied to equity dispositions. Is this a coincidence or are there valid reasons for not applying the arm's length principle to equity dispositions? In this article, the authors examine this issue from the perspective of the arm's length provision contained in the OECD Model and Norwegian domestic law, aimed at the particular case of thick (equity) capitalization. Part 1 of this article discussed the applicability of the Norwegian arm’s length provision to equity contributions. The issues in this part of the article are whether the tax treaty provisions based on article 9 of the OECD Model apply to equity contributions and whether it is commercially irrational for a parent company to finance a subsidiary with equity rather than debt.

Consistency versus “Gold Plating”: The EU Approach to Implementing the OECD Pillar Two

This article considers the proposed EU Directive to transpose the OECD Global Anti-Base Erosion (GloBE) Model Rules into EU secondary law. It describes the key aspects of the rules, notes the differences between the EU proposal and the OECD Model Rules, and demonstrates how the new charging provisions will operate.

Resolving Residence of a Company for Tax Purposes in Tanzania: Is ‘Management and Control’ Test Still Relevant?

Abstract It is an accepted principle that countries have the right to tax residents and nonresidents on their income from business on source or residence. The determination of the residence of a company for tax purposes based on the “management and control” and ‘place of effective management’ may pose challenges in establishing tax liability of a dual resident corporation. Such challenges cause problems on corporate taxes and transfer pricing between related parties. Similarly, multinational companies may face challenges in ascertaining their tax liability. The new criteria for determination of residence of a company based on mutual agreement under the OECD and UN Models of 2017, have ramification over the two tests. This article analyses residence of a company on the basis of the two tests in Tanzania. It argues that the two tests as used in Tanzania are superseded by new criteria. Finally, it offers a modest proposal for determination of dual resident of a company in Tanzania.

Is Soft Law Making Hard Law Too Hard?

Soft laws are created for many reasons to serve various purposes. This article focuses on acts of soft law that are adopted to facilitate the process of applying hard law (or complying with it) and to standardize the understanding of international agreements. In the field of customs law, one can point, for instance, to opinions adopted by the World Customs Organisation. The Organisation for Economic Co-operation and Development (the OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and the Commentary to the OECD Model Tax Convention on Income and on Capital are globally recognized examples of the tax arena. The side effects of the application of acts of soft law in the fields of tax law and customs law are presented and analysed. Interpretative problems are observed at the international level, whereas clear-cut side effects often occur domestically. customs classification – World Customs Organisation (WCO) – double taxation conventions – Organisation for Economic Co-operation and Development (the OECD) – Model OECD – OECD Transfer Pricing Guidelines – OECD Commentary – interpretation

The Relationship between the Taxation of Business Profits and Income from Immovable Property under Tax Treaties

This article examines the relationship between the provisions in the OECD Model on income from immovable property and on business profits, establishes the overlaps, demonstrates how these overlaps were solved by the predecessors of the OECD and domestic courts – thereby leading to qualification conflicts – and discusses how this situation is currently resolved.

The Possible Regulation Model To Optimize The Automatic Exchange Of Information (Aeoi) In Indonesia Through Directorate General Of Taxation, Ministry Of Finance And Financial Services Authority

Tax Treaty is a bilateral(two-party) agreement made by two or more than two countries to resolve some issues involving double taxation, transfer pricing, and treaty shopping. Several governments and organizations use model treaties generally as starting points, such as OECD Model Convention and US Model Convention. As a member of G20, Indonesia has participated in The Automatic Exchange of Information (AEoI) provides for the automatic exchange of predefined set of financial accounts information between tax authorities, based on The Common Reporting Standard (CRS), as also mentioned in Tax Information Exchange Agreement (TIEA) implemented in 2018. In order to implement AEoI the Indonesian regulator needs to review the Banking Law and the Tax Provisions and Procedures, There is an urgent need to regulate a regulation as a standard that will be used in CSR, support the tax reform and to enhance the capacity and the authority of Directorate General of Taxation, Ministry of Finance and Financial Services Authority, while still considering the protection for the Bank Secrecy. This research will formulate a model regulation that can facilitate the implementation of the AEoI, by carrying out a study in 3 countries, which is Indonesia, Malaysia and Singapore

Most Favoured Nation Clauses in Tax Treaties: Comparative Analysis and Main Issues

Over time, the use of most favoured nation clauses has seen widespread adoption in double tax treaties, especially in those agreed with developing countries. The use of such clauses, however, does not appear to have been supported frequently by tax policies and/or careful ad hoc analysis, e.g. on the structure, wording and consequences of these provisions in the relevant tax treaty networks. The lack of a model clause in the OECD and UN Model Conventions, and the proliferation of many variants could have played a role in this regard. Because of this, the application of this clause still today triggers many issues that can prevent, for example, its clear and correct interpretation and application and the enjoyment of legitimate treaty benefits by taxpayers or may entail challenges for treaty negotiations. These issues may relate mainly to the nature of such clauses and the policies behind them, as well as to the lack of a clear wording that can facilitate their application in different ways. In light of the above, the purpose of this article is to outline certain critical situations that could occur when applying such clauses. The analysis was conducted after assessing the historical background of most favoured nation clauses and carrying out a comparative analysis through the different variants used in the Chilean, Indian and Italian tax treaty network to assess if different approaches have been adopted so far by countries with different economic, legal and tax backgrounds.

International Taxation of Offshore Indirect Transfers of Mineral Assets: Legal Analysis Considering the Principle of Fairness and Sustainable Development

This article evaluates the current international tax regime that is applicable to gains on offshore indirect transfers (OITs) in the mineral industries against the concepts of fairness and sustainable development. It is first argued from a legal perspective that these two concepts encompass the principles of equality and legal certainty. Article 13(4) of the OECD (Organization for Co-operation and Development) and UN Model Tax Treaties and Article 9 of the Base Erosion and Profit Shift (BEPS) Multilateral Instrument for tax treaties are subsequently analysed to determine to what extent these provisions contribute to supporting tax equality among businesses and between countries as well as promoting legal certainty for both the taxpayers and tax authorities. It was determined that the structuration of mining operations in the form of joint ventures may pose particular challenges, including difficulties in valuing mineral assets or determining the sources from which interests derive value. In this respect, the inclusion of certain exceptions in Article 13(4) of tax treaties is proposed. One such instance could be the exclusion of the scope of the provision of gains made by alienators that hold a certain level of participation. The authors conclude that each country should determine whether to tax such capital gains, taking into account its own specificities and examining the tax system in its entirely. However, the current tax regime is a positive step forward towards fairer taxation and contributes to the fulfilment of specific sustainable development goals (SDGs), at least from the perspective of developing countries. Fairness, legal certainty, tax equality, offshore indirect transfer, sustainable development, tax avoidance, mineral industries, developing countries

The Arm’s Length Principle and Equity Dispositions: The Case of Thick Capitalization – Part 1

The arm’s length principle has existed for more than 100 years, and a large number of equity dispositions have been undertaken for even more years. Still, neither the OECD nor the Norwegian legislator has ever suggested that the arm’s length principle can be applied to equity dispositions. Is this a coincidence or are there valid reasons for not applying the arm’s length principle to equity dispositions? In this article, the authors examine this issue from the perspective of the arm’s length provision contained in the OECD Model and Norwegian domestic law, aimed at the particular case of thick (equity) capitalization.

EU Beneficial Ownership Further Developed: A View from a Different Angle

In this contribution, the author tries to further develop the EU beneficial ownership concept for the exemption from withholding tax for EU intragroup interest and royalties and to distinguish this concept from the principle of EU law on the prohibition of abuse. The issue is examined from several different angles than available in the literature at present. Among other things, inspiration is drawn from VAT case law in which several comparable issues regarding the concept of beneficial ownership were discussed. The author comes to the conclusion that the beneficial ownership concept is a conditional, dynamic EU concept inspired by the Commentary on the OECD Model and that for EU intragroup dividends, there is no explicit and implicit beneficial owner requirement for the application of the exemption from withholding tax. The EU concept of “beneficial owner” concerns not a formally identified recipient but rather the entity that benefits economically from the payment received and accordingly has the power freely to determine the use to which it is put. This economic interpretation is independent of the question whether, in a certain case, there is abuse of law. Under this economic interpretation, the Court of Justice of the European Union (ECJ or the Court) takes into account formal contractual or legal obligations to pass on received payments. This is confirmed in the VAT case law, in which similar issues arose. It can also be concluded from VAT case law that the ECJ will, in all likelihood, take into account (implied) contractual pass-on obligations. In addition, there must be a current and direct obligation to pass on the payment on the basis of a formal or implicit legal or contractual obligation.

ОЦЕНКА КАЧЕСТВА ГОРОДСКОЙ СРЕДЫ ВЛАДИВОСТОКА НА ОСНОВЕ CИСТЕМЫ ИНДИКАТОРОВ

The paper presents an analysis of the quality of the urban environment of Vladivostok based on a system of indicators using the OECD model „Impact - State - Response“. The system of indicators proposed by the OECD as a plan for the development of green cities includes more than 100 main and about 50 additional indices that assess the environmental component of the urban environment. The authors propose a set of 23 aggregated indicators that consider the main sources of harmful effects on the environment, air and sea conditions, and the living standards, as well as the reaction of the population and the municipal administration to ongoing changes. The use of remote sensing data made it possible to determine the indices characterizing the degree of the territory development and to obtain a spatial pattern of land use changes in the urban district. Based on the dynamics of aggregated indicators for the period from 2011 to 2018 integral indicators are calculated to assess the current state of the urban environment, identify its most problematic components and outline ways for a rational arrangement. The authors note the need to consider the negative consequences of land use change and irrational resource use under the formation of the Vladivostok agglomeration, as well as to develop a strategy to improve the living standards of the population while keeping the environment safe.