Wednesday 6 July 2016

United Nations – Tax Developments (Piergiorgio Valente)

The United Nations held in Geneva at the Palais des Nations on October 19 – 23, 2015 the Eleventh Session of the Committee of Experts on International Cooperation in Tax Matters.

Among the key issues discussed, we may also find the forthcoming update of the United Nations Model Double Taxation Convention between developed and developing Countries as well as the next update of the United Nations Practical Manual in Transfer Pricing for Developing Countries.

As far as the next updates of the United Nations Model are concerned, the following issues were addressed:

- application of treaty rules to hybrid entities (Article 1);

- the meaning of “connected projects” (Article 5);

- the meaning of “auxiliary activities” under Article 8 (Transportation);

- Article 12 on Royalties.

The Tax Committee also discussed the impact of the OECD recommendations on base erosion and profit shifting and taxation of services.

The New Services Article

A new Technical Services Article will be included in the updated version of the UN Model. The new provision stipulates that technical services will be taxed in the country where they “are generated/arise” and not necessarily where they are performed. A number of developed countries expressed their disapproval about taxing services in those cases where they are not performed in the country in which they are generated and when there is not sufficient nexus with such country, under ordinary international tax rules, such to entitle to a charge. All disagreements expressed will be included in the commentary of this new article.

Notwithstanding the above, the inclusion of the new article in double tax treaties is not expected to be implemented in the next few years, but it might be used as a bargaining tool whenever negotiating new treaties.

Counteracting Tax Evasion

In the tax evasion area, the Subcommittee on Exchange of Information submitted a Draft “Code of Conduct”. Purpose of such “Code of Conduct” is to provide guidance for countries to enhance transparency and exchange of information aimed at countering international tax evasion. Following the most recent discussions, a new draft should be issued at the October 2016 session of the Committee; such draft would also include the shared comments.

Capacity-building

A progress report was submitted by the Secretariat outlining the various publications, courses and initiatives that are being carried out to assist developing countries in improving their knowledge and expertise to manage their tax systems efficiently.

The work carried out by the UN DESA’s Financing for Development Office in the area of capacity-building was welcomed, as was the release of the “Handbook on Selected Issues in Protecting the Tax Base of Developing Countries”.

Set-up of Two New Subcommittees

In addition, two new Subcommittees were set up:

o Royalties (Article 12 UN Model and Commentary) – to work on potential improvements to the Commentary to Article 12 of the UN Model Treaty (e.g., tax treatment of industrial, commercial and scientific tools and software-related payments);

o Mutual Agreement Procedure (MAP) – to consider a review and propose updates to improve the UN Model.

Monitoring of UN tax developments within the international tax landscape is fundamental, since not all developing countries are willing to implement OECD BEPS recommendations.

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