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Insights into the 2017 UN Model Double Taxation Convention

On 17 May 2018, the United Nations released the text of the 2017 United Nations Model Double Taxation Convention between Developed and Developing Countries. The new UN Model adopted most of the new features introduced to the 2017 OECD Model Convention under the BEPS final reports. The most important changes compared to the 2011 version of the UN Model are summarized below:

– The preamble of the UN Model Convention is amended in order to insert a text to clarify that treaties are not intended to be used to produce situations of double non-taxation.

– Article 1 (Persons covered) is amended to include a fiscally transparent entity clause and a saving clause that clarifies that residence taxation is generally preserved under tax treaties.

– Article 4 (Resident) is modified to include a new tie-breaker rule for determining the treaty residence of dual-resident persons other than individuals.

– Article 5 (Permanent establishment) is modified to prevent the avoidance of permanent establishment (PE) status. Accordingly, paragraph 4 is amended to ensure that the specific activity exemptions cannot be used to artificially avoid PE status. Furthermore, an anti-fragmentation rule is added through a new paragraph 4.1. Finally, paragraphs 5 and 7 are amended to broaden the scope of the dependent agent PE rule to counter structures aimed at the avoidance of a PE (including commissionaire arrangements).

– Article 10 (Dividends) is modified to change the circumstances in which a lower rate applies for dividends on direct ownership of shares above the 25% threshold. Accordingly, the company receiving the dividends must hold directly, at least, 25% of the company paying the dividends throughout a 365-day period including the day of the payment of the dividends.

– Article 12A (Fees for technical services) is added to the UN Model to allow source taxation on services by way of withholding tax at a percentage to be established through bilateral negotiation. read more

01/06/2018 - Ridha Hamzaoui

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