The OECD received comments from a variety of international associations and groups. Outlined below are some of the comments received by the BEPS Monitoring Group (BMG) and the International Chamber of Commerce (ICC).
The OECD has requested changes to paragraph 2 of Article 3 and related changes to the Commentaries on Articles 3 and 25. According to the OECD, the Action 14 Final Report requested these changes, which would override domestic law in a case where the competent authorities have agreed on a common meaning of an undefined term in a treaty. According to the BMG, this proposal was not included in the Action 14 Final Report, but is presented by the OECD as part of the follow-up work to clarify the legal status of a competent authority mutual agreement.
According to the BMG, tax treaties are generally incorporated directly into domestic law, and their provisions are subject to interpretation by the courts, which may be reluctant to accept that such interpretations can override domestic law interpretations. The BMG is generally supportive of interpretive mutual agreements between competent authorities, which may clarify the interpretation of tax treaties, depending on how they are established. However, the BMG “regret[s] the inclusion of this provision without adequate consultation, and advise[s] countries not to include it in their treaties.”
The OECD has requested the addition of a new Article 29 (Entitlement to Benefits) and related Commentary, which includes in the OECD Model Tax Convention a limitation-on-benefits (LOB) rule (simplified and detailed versions), an anti-abuse rule for permanent establishments (PEs) situated in third States, and a principal purposes test (PPT) rule.
According to BEPS Action 6, countries have committed to a minimum level of protection against treaty shopping (the “minimum standard”), requiring countries to include in their tax treaties an express statement that their common intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements. Countries will implement this common intention by including in their treaties one of the following:
- Combined approach of an LOB and PPT rule.
- PPT rule.
- LOB rule supplemented by anti-conduit rules.
According to the BMG, these detailed rules are complex and difficult to apply, and suggests that it would be helpful for the OECD Commentary to mention the UN model as a comparison.
The OECD has requested changes to Article 5 and its Commentary resulting from the Action 7 Final Report. The ICC fully supports the amendment to the Commentary of this Article, which specifies that the treatment of a foreign enterprise in terms of Value Added Tax (VAT)/Goods and Service Tax (GST) is, by itself, irrelevant as to whether a PE exists.
The BEPS Action 1 Final Report says that “in considering simplified registration for VAT purposes, it is important to underline that registration for VAT purposes is independent from the determination of whether there is a permanent establishment (PE) for income tax purposes.” ICC believes that it would be beneficial to include in the Commentary a cross-reference to the VAT/GST Guidelines and the BEPS Action 1 Final Report.