Monday, January 23, 2006

Does a big Committee mean big changes?

The United Nations decided to substitute the UN's Ad Hoc Group of Experts on International Cooperation in Tax Matters (formed in the 1960s) by the Committee of Experts on International Cooperation in Tax Matters. So instead of a Ad Hoc group (academics) we have now a Committee (tax authorities). The rest remains, including the reference to expertise!

Accordingly, the new Committee, which comprises of 25 members (nominated for four years and acting in their personal capacity, reflects a more adequate geographical distribution of different tax systems. Let’s see:

- The usual (OECD) suspects, US, Spain, Italy, UK, Ireland, Korea, France, Norway, Japan, Switzerland, Mexico

- The strong “developing” elements: Brazil, South Africa, Russian Federation, China and Indonesia. By the way where is India???

- The outsiders: Qatar, Barbados, Morocco, Bahamas, Philippines, Tanzania , Zambia, Peru and Tunisia

Apparently, the UN expects that this new body will increase the organization's role in international tax issues. That only time will tell. But for the ones that do not follow these developments, the results of the first session of the Committee held in Geneva from 5-9 December 2005 were recently published in the UN website and such developments include proposed improvements in the Commentaries on Article 5 of the United Nations Model.

With regards to the proposed amendments (based on a paper by Hans Pijl and Ramona Piscopo) , they can be briefly summarized as follows: (a) The wording of article 5 of the text of the United Nations Model should not be amended; (b) The OECD Commentary should be used as a basis upon which to formulate United Nations amendments and therefore special regard should be given to the latest OECD amendments (2003 and 2005); (c) In that regard, the OECD amendments to paragraphs 42.1-42.10 on electronic commerce should be included in the United Nations amendments; (d) The addition of paragraph 4.5 to the OECD Commentary should be clarified further in that article 5 (3) of the text of the OECD Model is a special rule under the general rule of article 5 (1); and (e) Other minor amendments or linguistic improvements should also be considered.

At this stage, I expect that this document will serve as a starting point to a discussion on wider amendments to the UN PE article and commentaries. A discussion focussing, for example, on issues which raise controversy such as the taxation of services and the UN PE clause (See NOTE). Please note that you are free to forward your own comments to the Committee Secretariat no later than 28 February 2006.

Several papers were presented during the meeting, with some of them being made available on the UN website:
Abuse of tax treaties and treaty shopping
This addresses whether and how to amend the current comments on improper use of conventions which are found in the Commentary on Article 1 of the UN Model Tax Convention.

Assistance in the collection of taxes
This paper addresses whether an Article on Assistance in the Collection of Taxes should be added to the UN Model Convention and if yes, whether that Article should be drafted in accordance with the draft produced during the December 2003 meeting.

Revision of the United Nations Model Resolution of Tax Treaty Disputes
The present paper examines recent evolution as regards mutual agreement procedures. In that regard the paper addresses the EU arbitration convention, the recent OECD work on this area and outlines options for future work.

Application of the United Nations Model to payments received under certain financial instruments
The paper examines a number of examples in which a taxpayer uses financial instruments in light of relevant provisions of the UN Model Double Taxation Convention.

Proposed revision of article 26, Exchange of information, of the United Nations Model Double Taxation Convention between Developed and Developing Countries
This paper, presented by Davis Spencer, reflects the recent developments in exchange of information for tax purposes, including the OECD work and suggests (a) an update of article 26 of the UN Model and (b) additional work by the Committee of Experts in liaison with OECD, on what constitutes effective exchange of information for the purposes of article 26 of the United Nations Model Income Tax Treaty.

Report of the Ad Hoc Group of Experts Meeting on Exchange of Information (Revision of Article 26 of the United Nations Model Double Taxation Convention between Developed and Developing Countries)
The ad hoc group of experts examined the changes made by the OECD to Article 26 of its Model convention and discussed whether those changes would be appropriate for the comparable provision of UN Model convention. It was guided in that examination by the paper prepared by Mr. David Spencer.

OECD’s work on improving exchange of information
This paper sets out the issues that the OECD Member countries have been discussing in the area of exchange of information and also provides a summary of the OECD work in this area.

Tax cooperation and cross-border tax crime: Roles of international organization and potential roles for the United Nations
This paper addresses the role of the UN and whether the UN would want to engage in additional efforts to combat tax crimes through non-tax mechanisms.

(NOTE) Article 5, paragraph 3, of the UN Model contains a subparagraph (b) dealing with the furnishing of services, including consultancy services which are not covered specifically in the OECD Model Convention in connexion with the concept of PE. The UN felt that management and consultancy services should be covered because the provision of such services in developing countries by corporations of industrialized countries often involved very large sums of money. The UN was of the opinion that profits from such services should be taxed by developing countries in certain circumstances.


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