OECD reports related to the Model Tax Convention

The OECD Model Tax Convention on Income and on Capital is already on its sixth edition (2005), since it was first published in loose-leaf format in 1992. In order to do a through analysis of the OECD Model sometimes is necessary to rely on the background reports that were the basis of the changes to the Model. This summary is designed to provide you with an overview and respective hyperlinks to most of those reports (past and future).


Previous OECD reports related to the Model Tax Convention

1. "Transfer pricing, corresponding adjustments and the mutual agreement procedure", adopted on 24 November 1982

This report is related to Arts. 9 and 25 in the context of transfer pricing adjustments. It reviews experience gained in that field by tax administrations and multinationals and the procedures available to resolve tax disputes. The report also deals with the issues relating to mandatory corresponding adjustments subject to an arbitration procedure. Several recommendations of this report were integrated with the text of the Commentary on Arts. 9 and 25, as part of the 1992 update.

2. "The taxation of income derived from the leasing of industrial, commercial or scientific equipment", adopted on 13 September 1983

This report deals with problems arising from the inclusion of income from leasing of equipment in Art. 12 of the 1977 version of the Model. As part of the 1992 update, the reference to such equipment in Para. 2 of Art. 12 was deleted and corresponding changes were made in the Commentary on Arts. 5, 7 and 12.

3. "The taxation of income from the leasing of containers", adopted on 13 September 1983

This report is limited to problems of inclusion of income from leasing of containers (falling within the notion of industrial, commercial or scientific equipment) in Art. 12 of the 1977 version of the Model. As part of the 1992 update, the reference to industrial, commercial or scientific equipment in Para. 2 of Art. 12 was deleted and corresponding changes were made in the Commentary on Arts. 5, 7 and 12.

4. “Taxation Issues Relating to the International Hiring-out of Labour", adopted on 24 August 1984

This report addresses the problems of hiring out labour, i.e. when a local employer wishing to use short-term foreign labour and avoid taxation of employment income in his state recruits the labour force through an intermediary established abroad. As part of the 1992 update, the Commentary on Art. 15 was amended to clarify situations covered by the exception of Para. 2 of Art. 15.

5. "Thin capitalisation", adopted on 26 November 1986

This report considers the issues of financing and thin capitalization, discusses the international effects of the various national approaches and analyses to what degree unjustifiable double taxation may be relieved with the assistance of tax treaties. As part of the 1992 update, this report resulted in changes in the Commentary on Arts. 9, 10, 11, 23A and 23B, 24 and 25.

6. "Double taxation conventions and the use of base companies", adopted on 27 November 1986

This report deals with the issues of the use of so-called base companies, the counteracting domestic anti-abuse measures and their compatibility with tax treaties. The report concludes that these measures are regarded as generally consistent with the spirit of international tax treaties but that the Member countries should nevertheless relieve double taxation as long as there is no clear evidence of treaty abuse. As part of the 1992 update, changes were made in the Commentary on Arts. 1, 9, 10 and 24.

7. "Double taxation conventions and the use of conduit companies", adopted on 27 November 1986

This report considers the issues of improper use of tax treaties by use of conduit companies. The report deals with implications of the Model Tax Convention and specific treaty provisions for conduit companies. As part of the 1992 update, the recommendations of this report were incorporated in the Commentary on Arts. 1, 4,10, 11 and 12.

8. "The taxation of income derived from entertainment, artistic and sporting activities", adopted on 27 March 1987

This report describes the main problems which arise in taxing income from entertainment, artistic and sporting activities at the national and international levels and suggests ways in which these problems can be overcome. As part of the 1992 update, Art. 17 was amended to replace "athlete" with "sportsman" and the Commentary on Art. 17 was extended.

9. “Tax Treaty Override”, adopted on 2 October 1989

This report discusses treaty override by examining the rules of international and domestic law, considering the possible legal remedies to treaty overrides and discussing different practical examples. The report includes a recommendation for Member countries to avoid enacting “overriding” legislation and to address bilaterally or multilaterally problems connected with a tax treaty. No amendments to the Model Tax Convention or the Commentary were adopted.

10. "The 183 day rule: some problems of application and interpretation", adopted on 24 October 1991

This report clarifies the interpretation of Art. 15 in several respects, and in particular the calculation of the 183-day rule. As part of the 1992 update, the recommendations of the report were incorporated into the Commentary on Art. 15.

11. "The tax treatment of software", adopted on 23 July 1992

This report analyses the treatment of software rights and payments for software under domestic laws and tax treaty law, as well as the application of the OECD Model to these payments. As part of the 1992 update, the Commentary on Arts. 7, 12 and 14 was amended.

12. "Triangular cases", adopted on 23 July 1992

This report analyses the problems concerning triangular cases involving the OECD Model, analyses countries' practices in this field and discusses ways of dealing with the problem. As part of the 1992 update, the Commentary on Arts. 10, 11, 12, 23A and 23B, and 24 was amended.

13. "The tax treatment of employees’ contributions to foreign pension schemes", adopted on 23 July 1992

This report deals with the tax treatment of pension contributions made by persons who render dependent personal services to multinational enterprises, whilst they are seconded abroad, and suggests a provision to be included in bilateral tax treaties. As part of the 1992 update, changes were made to the Commentary to Art. 18.

14. "Attribution of income to permanent establishments", adopted on 26 November 1993

This report discusses the most common problems and uncertainties related to attribution of income to permanent establishments. As part of the 1994 update, the suggested modifications to the Commentary on Art. 7 were included.

15. "Tax sparing – a reconsideration", adopted on 23 October 1997

This report deals with the issues of effectiveness and necessity of tax sparing clauses as well as suggestions to minimize related abuse. As part of the 2000 update, the recommendations of the report were incorporated into the Commentary on Arts. 23A and 23B.

16. "The application of the OECD Model Tax Convention to partnerships", adopted on 20 January 1999

This report deals with the application of the provisions of the Model Tax Convention to partnerships, focusing on specific factual examples. As part of the 2000 update, an additional Para. 4 was included in the text of Art. 23A, and the Commentary on Arts. 1, 3, 4, 5, 15, 23A and 23B was amended.

17. "Issues related to Article 14 of the OECD Model Tax Convention", adopted on 27 January 2000

This report deals with a number of problems relating to the taxation of professional services and other activities of an independent character, and the application of Art. 14. As part of the 2000 update, Art. 14 was deleted and corresponding changes were made in Arts. 3, 6, 10, 11, 12, 15, 17, 21 and 22, as well as the Commentary.

18. "Improving Access to Bank Information for Tax Purposes", declassified on 24 March 2000

This report describes the current position of the OECD Member countries as to access to bank information and suggests measures to improve access for tax purposes. This report had an impact on the 2005 update, which included amendments to Art. 26 and its Commentary.

19. "Clarification on the Application of the Permanent Establishment Definition in E-Commerce: Changes to the Commentary on the Model Tax Convention on Article 5", adopted on 22 December 2000

This report deals with the application of the current definition of permanent establishment in the context of e-commerce. The suggested changes mainly reflect the consensus that human intervention is not a requirement for the existence of a permanent establishment and that a web site cannot, in itself, constitute a permanent establishment. As part of the 2002 update, changes were incorporated into the Commentary on Art. 5.

20. “Restricting the Entitlement to Treaty Benefits", adopted on 7 November 2002

This report deals with the issues of restricting the entitlement to treaty benefits for entities and income covered by measures constituting harmful tax practices. It also discusses the use of the concepts of place of effective management and permanent establishment, as well as various other types of provisions, to reduce treaty benefits, and clarifies the concept of beneficial ownership. As part of the 2002 update, the Commentary on Arts. 1, 10, 11, 12, 23A and 23B was amended.

21. “Treaty Characterisation Issues Arising from E-Commerce", adopted on 7 November 2002

This report discusses various treaty characterization issues that may arise in electronic commerce, such as delimitation of business profits, royalties and technical fees, mixed payments, and the distinction between the provision of services and transactions resulting in the acquisition of property. As part of the 2002 update, the Commentary on Art. 12 was amended. See also the Report to working party no. 1 of the CFA on Tax Treaty Characterisation Issues Arising From E-Commerce.


22. “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention", adopted on 7 November 2002

This report discusses problems in applying the “fixed place of business” standard, the treatment of building sites, construction or installation projects, identifying preparatory and auxiliary activities and issues related to agency permanent establishments. As part of the 2002 update, the Commentary on Arts. 5, 10, 11, and 12 was amended.

23. "Changes to Articles 25 and 26 of the Model Tax Convention", adopted on 1 June 2004

As part of the 2005 update, Art. 26 and its Commentary were amended to further extend the scope of exchange of information. The Commentary on Art. 25 was also clarified with respect to confidentiality of information obtained in the course of the mutual agreement procedure.

24. "Cross-border income tax issues arising from employee stock option plans", adopted on 16 June 2004

This report addresses a number of issues arising from the use of stock options as part of employee remuneration packages. The main critical issues relate to characterization of income, taxing rights of benefits paid after the employee no longer works in a state or changes his residence, and taxation of benefits related to employment exercised in several states. As part of the 2005 update, the Commentary on Arts. 13, 15, 16 and 23 was amended.

25. "Employee Stock Option Plans: Impact on Transfer Pricing", adopted on 16 June 2004

This report deals with the transfer pricing issues in cases where stock options are granted to employees of an associated enterprise and discusses the impact of stock option plans on other intra-group transactions and cost attribution arrangements. No amendments to the Model Tax Convention or the Commentary were adopted.

26. "Taxation of Income from International Transport", adopted on 15 July 2005

This report deals with the concept of profit from activities directly connected or ancillary to the operation of ships or aircraft in international traffic. As part of the 2005 update, the Commentary on Arts. 3 and 8 was amended.

27. "Proposed Clarification of the Permanent Establishment Definition", adopted on 15 July 2005

This report deals with the concept of agency permanent establishment and the application of the permanent establishment concept in situations of a group company creating a permanent establishment of other group companies. As part of the 2005 update, the Commentary on Art. 5 was amended.

28. "Tax treaty issues arising from cross-border pensions", adopted on 15 July 2005

This report deals with several issues, namely characterization of pension and other social security payments, allocation of taxing rights and other issues related to foreign individual retirement schemes, pension schemes and pension funds. As part of the 2005 update, changes were made in Art 19 and Commentary on Arts. 18 and 19 were amended.

OECD discussion drafts related to the Model Tax Convention

This section lists a number of discussion drafts related to the Model Tax Convention and the Commentary thereon.

1. “Attribution of Profit to a Permanent Establishment Involved in Electronic Commerce Transactions”, discussion draft of 1 February 2001

This discussion draft provides a detailed analysis of the transfer pricing issues arising in attributing profit to a permanent establishment involved in electronic commerce activities. The paper is limited to an analysis of enterprises engaged in the retail distribution of entertainment products (“e-tailing”).

2. "Place of Effective Management Concept: Suggestions for Changes to the OECD Model Tax Convention", discussion draft of 27 May 2003

This discussion draft develops two alternative proposals to improve the place of effective management concept under Para. 3 of Art. 4 of the OECD Model. The first proposal seeks to refine the concept of “place of effective management” by expanding the Commentary explanations of how the concept should be interpreted. The second proposal puts forward a tie-breaker rule for persons other than individuals to modify Para. 3 of Art. 4 together with the Commentary thereon.

3. "Proposed Clarification of the Scope of Paragraph 2 of Article 15 of the Model Tax Convention", discussion draft of 5 April 2004

This discussion draft proposes changes to the Commentary on Para. 2 of Art. 15 to clarify its application in situations where services are provided through intermediaries. The proposed changes address the interpretation of the word “employer” and the distinction between employment and self-employment. The draft provides practical examples to illustrate the application of the rules.

4. "Attribution of Profits to Permanent Establishments", discussion draft released in parts: on 3 August 2004 (Part I General), 4 March 2003 (Part II Banks, Part III Global Trading of Financial Instruments) and 27June 2005 (Part IV Insurance)

This discussion draft aims to formulate the preferable approach to attributing profits to a permanent establishment under Art. 7. The discussion draft also examines the special considerations that need to be taken into account when profits are to be attributed to a permanent establishment of an enterprise carrying on global trading of financial instruments, banking or insurance businesses.

5. "Proposals for Improving the Process for the Resolution of Tax Treaty Disputes", discussion draft of 1 February 2006

This discussion draft examines ways of improving the effectiveness of the mutual agreement procedure under Art. 25, including the consideration of other dispute resolution techniques, which might be used to supplement the operation of the mutual agreement procedure. The proposal includes various changes to the Model Tax Convention, including a new paragraph to Art. 25.

Other OECD publications and documents related to the Model Tax Convention

This section lists a number of OECD publications and other documents related to the Model Tax Convention and the Commentary thereon.

"Transfer pricing guidelines for multinational enterprises and tax administrations", published in 1995

The OECD Transfer Pricing Guidelines maintain the arm's length principle of treating related enterprises within a multinational group and affirm traditional transaction methods as the preferred way of implementing the principle. The OECD transfer pricing guidelines are revised periodically.

"The Taxation of Global Trading of Financial Instruments", published in 1998

This publication reviews the factual background to global trading, analyses the challenges posed to traditional taxation methods and discusses a range of policy options to tackle the problems of global trading of financial instruments.

"Harmful Tax Competition, An Emerging Global Issue", adopted on 8 April 1998

This report addresses harmful tax practices in the form of tax havens and harmful preferential tax regimes in OECD Member countries and non-Member countries and their dependencies. It focuses on geographically mobile activities, such as financial and other service activities. The report defines the factors to be used in identifying harmful tax practices and goes on to make 19 wide-ranging recommendations to counteract such practices.

“OECD Model Agreement on Exchange of Information in Tax Matters”, released on 18 April 2002

This Model, developed by the Global Forum Working Group on Effective Exchange of Information, is a result of the ongoing work for eliminating harmful tax competition. The 1998 report identified the lack of the effective exchange of information as one of the key criteria in determining harmful tax practices. The Model, both in its bilateral and multilateral versions, is intended to establish the standard of what constitutes effective exchange of information.

"Guidance in Applying the 1998 Report to Preferential Tax Regimes (Consolidated Application Note)", released on 22 March 2004

The Consolidated Application Note provides guidance to assist governments in the evaluation of existing or future preferential regimes on a generic basis. It consolidates the application notes developed by the Forum on Harmful Tax Practices and provides guidance in assessing preferential regimes that apply to income from geographically mobile activities, i.e. excluding preferential regimes designed to attract investment in plant, buildings and equipment.

"Are the Current Treaty Rules for Taxing Business Profits Appropriate for E-Commerce?", released on 19 December 2005

This report presents an evaluation of the rules on taxing business profits and examines the alternatives for changes in the context of e-commerce. The report concludes that it would not be appropriate, at this stage, to embark on changing the existing treaty rules. Nevertheless, on the basis of the report several issues will continue to be monitored.

“Manual on the implementation of exchange of information provisions for tax purposes”, approved on 23 January 2006

This manual provides an overview of the operation of exchange of information provisions and some technical and practical guidance. The manual is designed to assist tax authorities in dealing with exchange of information for tax purposes, with a view to improving the efficiency of such exchanges. The manual discusses information exchange on the basis of the revised text of Art. 26, which was agreed by the OECD in June 2004.

Attribution of Profits to a Permanent Establishment – A brief note on the new U.S. Model

This note on the issue of attribution of profits to a PE is part of a forthcoming wider analysis to the 2006 U.S. Model.

U.S. tax policy choices may be said to reflect not only on its tax legislation but also on its tax treaties. After a decade where the US Treasury Department has revamped key treaties of its treaty network, it was expected that the newly released 2006 update to the U.S. Model Income Tax Convention and Model Technical Explanation, would take into account some of the tax treaty policies well-established on the recently concluded treaties.

Taking into account that the U.S. Model and Technical Explanation are used as a starting point in bilateral treaty negotiations, it is a good window to understand certain treaty policy choices, derived form interaction of foreign legislation with domestic rules, and its recent evolution since its last update in September 1996 (See 1996 United States Model Income Tax Convention).

One of the novelties of the 2006 US Model is the addition, in line with the ongoing OECD project on attribution of profits to a PE(*), of a new language on the business profits article. In anticipation of the OECD findings, paragraph 2 of Art. 7 includes a last sentence referring that business profits to be attributed(**) to the PE shall include only the profits derived from the assets used, risks assumed and activities performed by the PE. This terminology of assets, risks and activities resembles the functional analysis approach used in the OECD PE drafts.

Paragraph 2 reads as follows: “Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits that it might be expected to make if it were a distinct and independent enterprise engaged in the same or similar activities under the same or similar conditions. For this purpose, the profits to be attributed to the permanent establishment shall include only the profits derived from the assets used, risks assumed and activities performed by the permanent establishment.”

The technical explanation was adequately expanded to take account recent developments. For example, the new technical explanation now refers that the language of paragraph 2 (combined with paragraph 3) incorporates the arm's-length standard, which is interpreted by the US in a manner consistent with the OECD Transfer Pricing Guidelines. Nevertheless, such consistency, including the application of the transfer pricing profits methods, should take into account the different economic and legal circumstances of a single legal entity (as opposed to a separate enterprise).

In addition, paragraph 3 is also amended to conform to the current OECD Model Tax Convention. The more detailed references included in the 1996 Model were simply eliminated, namely that the expenses considered to be incurred for the purposes of the PE were expenses for research and development, interest and other similar expenses.

Paragraph 3 reads as follows: “In determining the profits of a permanent establishment, there shall be allowed as deductions expenses that are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.”

The new language of Paragraph 3 is coupled with an interpretative note to be included in the protocol of the US treaties to be signed. In first place, the technical explanation refers that the rule provided by the interpretative note is that internal dealings may be used to allocate income (even though U.S. domestic regulations generally do not recognize them) in cases where the dealings accurately reflect the allocation of risk within the enterprise.

Secondly, the technical explanation mentions that the principles of the OECD Transfer Pricing Guidelines are considered to apply by analogy for purposes of determining the profits attributable to a PE. In that regard, the technical explanation refers that the amount of expense allowed as a deduction is determined by applying the arm's length principle, which means that a PE may deduct payments made to its head office or another branch in compensation for services performed for the benefit of the branch. The method to be used in calculating that amount will depend on the terms of the arrangements between the branches and head office and the technical explanation includes an example of legal services performed by the head office.

The interpretative note also mentions that a PE cannot be funded entirely with debt, but must have sufficient capital to carry on its activities. As such, in determining the amount of profits, the PE shall be treated as having the same amount of capital that it would need to support its activities if it were a distinct and separate enterprise engaged in the same or similar activities. This means that an interest deduction may be denied to the extent necessary to reflect such capital attribution.

Taking into account the restrictions for capital attribution found under U.S. domestic law, the interpretative note allows a taxpayer to apply a more flexible approach. For financial institutions (excluding the insurance sector) such amount of capital may be determined by allocating the institution’s total equity between its various offices on the basis of the proportion of the financial institution’s risk-weighted assets attributable to each of them. As regards insurance companies, it is mentioned that premiums earned through the PE and the portion of the insurance company's overall investment income from reserves and surplus that supports the risks, are attributable to a PE.

Comment: It is a fact that the U.S. plays a major role in setting the pace on international tax developments and that its treaty policies, reflected on US Model and treaties, are important to understand the so-called consensus mode of a wider forum, such as the OECD. The U.S. Model, on the issue of the attribution of profits, demonstrates that the U.S. is pushing ahead with the problematic OECD project by trying perhaps to find a middle ground (between the status quo and complete revamping of Art. 7) where business and tax administrations may agree to go forward. This is an example where the U.S. model is in fact ahead of the OECD Model, but other examples could also be mentioned, such as pension fund entitlement and hybrid entities. The slight amendments to Art. 7 may prove the support of the U.S. to the OECD PE project but the cautious wording found on the technical explanation also demonstrates that work needs still to be done in areas such as capital allocation.

(*) OECD Discussion Drafts on the Attribution of Profits to Permanent Establishments: Part I: General Considerations (2001 and 2004); Part II: Banks (2001 and 2003); Part III (Enterprises Carrying on Global Trading of Financial Instruments) (2003); and Part IV (Insurance) (2005).

(**) It should be mentioned that the term "attributable to" provides an alternative to the analogous "effectively connected" term used under US section 864(c). This is an important point since the PE income determined by applying U.S. effectively connected income rules and the amount determined under Article 7 may well be different. In light of extensive litigation in US Courts, the technical explanation sets out rules for the interaction of those two results.

Prize for tax authorities: Dancing eunuchs track tax evaders

Using dancing and singing eunuchs as a method to entice taxpayers to pay their back-taxes is curious but it is apparently paying back the investment.

See the CNN report.

US Treasury Issues New Model Income Tax Convention and Technical Explanation

The US Treasury Department issued new versions of the Model Income Tax Convention and Model Technical Explanation, which update the 1996 Model.

The new US Model, which serves as the basis for tax treaties concluded by the US, takes into account some of the new treaty policy developments already included in recent treaties concluded by the US.

International Tax Research: Tools & techniques

International Tax Centre - Leiden
Adv. LL.M. Program in International Taxation
Leiden, 13 November 2006

Presentation on International Tax Research: Tools & techniques


Abstract: Some people like puzzles and some don't. But to be a good (international) tax researcher you have to like (this sort of) puzzles!
When you face any legal research question or issue you have to know where to look for the answer. As we will see, electronic research can take you to sources you did not even know existed, or did not know contained possible answers. Nevertheless, you still need to know what databases to search, which are more adequate to your query. This presentation is designed to give you basic tools and then it is up to you to put it into practice!

Historical notes on the international efforts aimed at eliminating double taxation (draft)

Note: I always had difficulty in finding my way through the maze of developments on international tax. The problem increased if I would need to go a bit backwards in time and do an historical analysis. In the information age, these historical analyses are made easier because of Internet. The text below (which started as a joke) is just a road map to finding your way in the field of tax treaties and as any unfinished work needs still some polishing! Nevertheless, I post this note because I want to use it Monday during the Lecture on research tools at the Leiden International Tax Centre. Most of the links are to free websites, while only a few direct you to the IBFD (paid) Database.

The efforts aimed at eliminating international double taxation begun with a series of model or draft model bilateral tax conventions by the League of Nations and were pursued in the Organisation for Economic Co-operation and Development (OECD) in regional forums, as well as in the United Nations

In 1921, the League of Nations, acting in response to an appeal for action aimed at eliminating double taxation, entrusted a team of four economists, Sir Josiah Stamp(UK), Professor Einaudi (Italy), Professor Bruins (Netherlands), Professor Seligman (US), with the task of preparing a study on the economic aspects of international double taxation.

The four experts expanded on the doctrine of economic allegiance, which states that the determination of the quantum of tax that an individual is required to pay to each competing jurisdiction is closely linked to ascertaining where the true economic interests of that individual are to be found. In that regard, the experts found that four factors ultimately bear some incidence on the sharing of the tax base, namely (i) the principle of production or acquisition corresponding to the place of origin of the wealth; (ii) the principle of location, that is, the situs of the wealth; (iii) the principle of legal rights assimilated to the place of enforcement of the rights to the wealth; and (iv) the principle of consumption or appropriation or disposition of wealth which is the place of residence or domicile of the ultimate owner.

The 1923 Report recommended a scheme that rested on a distinction between taxes on global income (personal taxes) and all other taxes (impersonal taxes). The former were to be levied based solely on residence, while the latter were to be divided between residence and source based on the principle of economic allegiance. The four economists determined that the most important factors for determining the international tax competence are the origin of wealth and the residence or domicile of the owner who consumes the wealth. Therefore, an equitable sharing of tax jurisdiction requires the apportioning of economic allegiance between origin (source) and domicile (residence). This principle as demonstrated in the table below turned out to be quite favourable to residence.

Category Of Wealth (Preponderant Element - Origin Vs Domicile)
I. Land (Origin)
II a. Mines, oil wells, etc. (Origin)
II b. Commercial establishments (Origin)
III a. Agricultural (Origin)
III b. Money, jewelry, furniture, etc. (Domicile)
IV. Vessels (Origin (registration))
V a. Mortgages (Origin (property taxes) - Domicile (income Tax))
V b. Corporate shares (Domicile)
V c. Corporate bonds (Domicile)
V d. Public securities (Domicile)
V e. General credits (Domicile)
VI. Professional earnings (Domicile)

In 1922, the Financial Committee of the League invited a group of high-level tax officials from several countries to study the administrative and practical aspects of international double taxation and international tax evasion. In the course of sessions held from 1923 to 1927, the group following the previous work of the four economists drafted the first bilateral Tax Conventions, the so-called 1927 Draft which included:
- Convention for the Prevention of Double Taxation in the Special Matter of Direct Taxes dealing with income and property taxes;
- Convention for the Prevention of Double Taxation in the Special Matter of Succession Duties;
- Convention on Administrative Assistance in Matters of Taxation; and
- Convention on [Judicial] Assistance in the Collection of Taxes.

The 1927 Draft Convention for the Prevention of Double Taxation contained only 14 articles, 8 of them concerning income allocation of the so-called impersonal taxes. For example:
- Income from immovable property was taxable in the State in which the property in question was situated (Art. 2);
- Income derived from investments in transferable securities other than shares was taxable in the State in which the debtors of such income were at the time resident (Art. 3);
- Income from shares or similar interests was taxable in the State in which the real centre of management of the undertaking was situated (Art.4);
- Income from any industrial, commercial or agricultural undertaking and from any other trades or professions was taxable in the State in which the persons controlling the undertaking or engaged in the trade or profession posses permanent establishments. In case, the undertaking would posses permanent establishments in both States, each of the two States would tax the portion of the income produced in its territory (Art. 5);
- The fees of managers and directors of joint-stock companies were taxable in the State in which the real centre of management of the undertaking is situated (Art. 6);
-Salaries, wages or other remuneration of any kind were taxable in the State in which the recipients carry on their employment, with the exception of officials and public employees serving abroad, which were taxable in the State which pays those salaries (Art. 7);
- Public or private pensions were taxable in the State of the debtor of such income (Art. 8); and
- Annuities or income from other claims not referred to in the previous paragraphs were taxable in the State of fiscal domicile of the creditor of such income (Art. 9).

In 1928, the League of Nations released three different models (Ia, Ib, Ic) designed to prevent double taxation in the sphere of direct impersonal or personal taxes. The first draft still drew a distinction between impersonal and personal taxes, whilst this distinction was not present in the second and third draft.

In 1929, the League of Nations appointed a permanent Fiscal Committee. The Fiscal Affairs Committee approved in 1933 a draft convention on the allocation of business profits between states for the purposes of taxation. The 1933 draft convention is substantially based on the Mitchell B. Carroll report: Taxation of National and Foreign Enterprises: Volume 4 Methods of Allocating Taxable Income. Mr. Carroll, who was a former President of the Fiscal Committee of the League of Nations and the International Fiscal Association, with the help of a grant from the Rockefeller Foundation visited 27 countries and reported on their relevant legislation. The 1933 Draft Convention was slighly revised by the Fiscal Committee in June 1935.

With the Second World War, the world started diverging and the Mexico model convention of 1943 and the London model convention of 1946 are a good example of differences in view between countries. In 1946, the Fiscal Committee of the League of Nations, noting that a difference of opinion between capital-importing and capital-exporting countries persists, published both models together with commentaries. The Committee noted that "the work done both in Mexico and in London could be usefully reviewed and developed by a balanced group of tax administrators and experts from both capital-importing and capital-exporting countries and from economically-advanced and less-advanced countries, when the League work on international tax problems is taken over by the United Nations". Notwithstanding this pledge the United Nations did not occupy itself in the first decades of its existence with the development of the Model Tax Conventions.

Taking into account the progress had already been made under the League of Nations, the Organisation for European Economic Co-operation (later OECD) adopted its first Recommendation concerning double taxation on 25 February 1955. That recommendation was followed by the establishment of the Fiscal Committee, which was instructed to prepare a draft convention for the avoidance of double taxation with respect to taxes on income and capital

From 1958 to 1961, the Fiscal Committee prepared four reports under the title “The elimination of double taxation” The suggested new articles embodied the 1963
“Draft Double Taxation Convention on Income and on Capital” followed by the 1966 “Draft Convention for the Avoidance of Double Taxation with Respect to Taxes on Estates and Inheritances".

The revision of the 1963 draft model by the renamed Committee on Fiscal Affairs led to the 1977 “Model Double Taxation Convention on Income and on Capital”. Further revisions led to the publication in 1992 of the Model Convention in a loose-leaf format. This was the first step of an ongoing revision process intended to produce periodic updates the latest of which were in 2000, 2003 and 2005. The process of updating can be tracked down through the list of OECD reports that were adopted after the publication of the 1977 Model Tax Convention and that have resulted in changes to the text of articles of the Convention or the Commentary thereon.

As regards the United Nations, it was only in 1980 that the first UN Model Double Taxation Convention between Developed and Developing countries was published. The Ad Hoc Group of Experts on International Cooperation in Tax Matters adopted in 2000 a revised version of the UN Model, which was published by the United Nations as the 2001 UN Model. The UN Model is currently under revision.

But work on double taxation has also been taken at the regional and country levels. A good example is the so-called Andean Community Model. Decision 40 sets out an agreement to avoid double taxation between Member Countries. More recently the Andean Community has enacted a new decision that sets out to avoid double taxation and prevent tax evasion in the Andean countries. In accordance with the Cartagena Agreement the current members of the Andean Community include Bolivia, Colombia, Ecuador and Peru. On April 2006 Venezuela announced its decision to depart from the Andean Community.

Another good example is the multilateral double taxation treaty in place since 1983 between the Nordic countries (Finland, Sweden and Denmark) and other members of the Nordic Council (Iceland Norway), which replaced the previous bilateral treaties between the five countries.

Other models include the 1996 United States Model Income Tax Convention and the 1987 Intra-ASEAN Model Double Taxation Convention.

UN Model on the move?

The UN Committee of Experts on International Cooperation in Tax Matters, meeting in Geneva October 30 through November 3, discussed the possible revision of the 2001 United Nations Model Double Taxation Convention Between Developed and Developing Countries. The 2001 UN Model, which followed the previous 1980 UN Model, is still far from the development of its counterpart (the OECD Model) has had in the last decade.

The Provisional agenda and organization of work agenda included treaty abuses, mutual assistance in tax collection, definitions of permanent establishment and interest, taxation of development projects, information exchange, dispute resolution, and revisions of both the UN model income tax treaty and the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries. Read the final report.

Here is a list of the documents posted on the UN website:

1. Treaty Abuse and Treaty Shopping
2. Supplementary Note to Treaty Abuse and Treaty Shopping
3. Assistance in the collection of taxes (Article 27) and its commentary
4. Proposal for amendments to article 5 of the United Nations Model Double Taxation
5. Tax treatment of donor-financed projects
6. Revision of the wording of Article 26 of the UN Model Convention
7. Work on exchange of information and conclusion
8. Revision of the commentaries to Article 26 of the UN Model
9. Developing a Code of Conduct on Promoting Tax Compliance
10. Manual for the negotiation of tax treaties between developed and developing countries
Cover; Part1; Part 2; Part 3; Annex
11. Dispute Resolution/Arbitration in tax treaty disputes
12. Treatment of Islamic financial instruments under the UN Model Double

Click here for the documents made available for the first session held in Geneva from 5-9 December 2005.

Note: Click here for a good article by Bart Kosters (The United Nations Model Tax Convention and Its Recent Developments) on the evolution of the UN Model, namely the differences between the 2001 UN Model and the OECD Model and the UNModel of 2001 compared to the 1980 version.

Pic: the photo is taken from the strange phenomenon of the Death Valley Moving Rocks