History
The League's London conference had contemplated that its work on the London draft would be taken over and developed by some organ of the United Nations. That body's Economic and Social Council did indeed endeavour to pursue the matter in the years that followed, but the next move of significance came from a different body, the Organisation for European Economic Co-operation, as it was then known. This body had its origin in the consultative arrangements set up to secure the best possible use of the "Marshall aid" funds made available for post-war reconstruction in Europe, but by 1956 (prompted in part by representations from the International Chamber of Commerce executive committee) it set up its Fiscal Committee.
In a set of reports from 1958 to 1961 that Committee's proposals for a series of Model Articles were published, accompanied by commentaries. The Fiscal Committee continued in being after the Organisation for European Economic Co-operation was reconstituted in 1960-61 to form the Organisation for Economic Co-operation and Development ("OECD"). A consolidated version of the Committee's Model Articles, with some additional material, the whole forming a complete draft convention, was published following approval by the OECD Council in July 1963.
The Fiscal Committee and its 1971 successor the Committee on Fiscal Affairs continued to afford an international forum for the discussion of various aspects of taxation policy. In the course of that discussion the experience of member countries in applying bilateral conventions based on the 1963 Model was collected and examined. Study of certain particular points left open in 1963 continued. There were, of course, changes over the years in domestic tax systems: moreover, increasing activity in international business and investment tended to lead to more complex forms of organisation. For all these reasons a revision of the 1963 Model Convention and of the commentaries on its Articles was undertaken. The revised Model was published in 1977.
Continuous discussion of various aspects of the 1977 Model went on in the Committee on Fiscal Affairs of the OECD in subsequent years, and, in 1992, an updated version of the Model was published (which we call the 1992 Update). This differs in only a few respects from the 1977 Model .(The differences are detailed in our notes on the model articles). The main reason for the 1992 update seems in fact to have been that, over the years, the Commentary on the Model had been very considerably augmented and to some slight degree amended, in effect, by a series of Reports on various relevant topics produced by working parties of the Committee on Fiscal Affairs, and it seemed desirable to consolidate these with the existing Model and Commentaries into a single, updated text. However, it was foreseen that further development of the Model as well as the Commentary was likely and it was therefore decided to give the Model an ambulatory character, that is to produce it in a loose leaf form so that further modifications could be published in a convenient manner as and when they were agreed. Further updates providing minor amendments of the text were published in 1994, 1995, 1997 and 2000 (this latter making also rather more substantial changes). Nevertheless, the Model, notwithstanding its various subsequent updates has remained, in essence, substantially the Model of 1977.
More substantial changes were made in the 2000 update, but even these revisions, which, inter alia, deleted Article 14, are not, in essence, of major importance, except for the expansion of the scope of Article 26 to provide for exchanges of information relating to all taxes imposed on behalf of the Contracting States and their political subdivisions and local authorities. The 2002 update allowed a contracting state to tax gains by residents from the alienation of shares in certain property owning companies and introduced a new article dealing with assistance by contracting states in the collection of each other's taxes. The 2005 update made a few minor changes, including an elaboration of the Exchange of information article (Article 26).
Nevertheless, the Model, notwithstanding its various updates, has remained, in essence, substantially the Model of 1977.
The text of the Articles which is reproduced in the subsequent pages of this book is therefore essentially the text of the 1977 Model, and it is that text which mainly underlies the discussion of the various subjects which are dealt with in the Model. Nevertheless it is right to draw attention to the circumstance that many years after the 1977 revision was published, a very considerable number of the bilateral conventions currently in force are the result of negotiations taking place, in part at least, before the 1977 Model had made its appearance. For that reason the 1963 Model still retains importance as an item of study, and that fact has been kept in mind in what follows.
Neither the OECD nor other Models contain all the items which may appear in a bilateral Convention. Not all the items are of sufficient general importance to be the subject of such a Model. Many which do appear are special to the situation of one or other of the treaty partners. Other matters which appear in a number of bilateral Conventions are matters on which the constituent members of the two organisations are unable to agree to include in a Model intended for general use. As examples one may instance provisions against "treaty shopping " ( provisions to prevent the abuse of tax treaties by channelling income through countries with an advantageous tax treaty), and "matching credit" (provisions which require one of the treaty partner countries to give credit against its tax for tax spared in the other country under rules designed to encourage economic development). Another example consists of a variety of provisions designed to deal with the tax problems of offshore gas and oil exploration and exploitation. Some of these items are briefly discussed in subsequent pages of this Introduction, and at relevant points in the discussion of the bilateral Treaties.
The revisions of the Commentaries elaborate and refine the interpretation of the Model . This process of refining and improving is intended to continue. With this in mind the OECD has sought to widen the opportunities for taxpayers as well as tax authorities to help in the process. Thus it has added to its longstanding consultations with the representatives of taxpayers through the organisation's Business and Advisory Committee (BIAC) by establishing a relationship with the International Fiscal Association, maintaining, for example, an official presence at recent annual conferences of that body. It has also entered into exploratory discussions with non-member countries' tax authorities, with the object of fostering a convergence of view on tax policies in the interest of encouraging international trade and investment, and has published reports of conferences attended by tax experts of both member and non-member countries on tax treaty linkages between OECD member countries and non- member economies (1995) and taxing international business (1996). In addition it has recently included as part of the Commentary on the Model Convention a section noting various reservations and observations expressed by a number of non-member, particularly developing, countries, on the terms of the model articles.
For Additional OECD Commentary from Tax Treaty Analyst including »
Developments up to 1990
Developments after 1990
Post-millennium activities
Ongoing work in the OECD
The History of Tax Treaty Provisions—And Why It Is Important To Know About It
A b s t r a c t
International, and largely bilateral, income tax treaties perform the significant function of
coordinating the interaction of otherwise separate income tax regimes to allocate shared
tax bases between nations otherwise able to assert legitimate claims to tax income that
is somehow connected to each of them. Inevitably, treaties are compromises between
disparate national tax and legal systems and between the tax policy objectives underlying
national tax systems. The increasing importance of tax treaties is reflected by, among other
things, the importance attached to refining the “permanent establishment” notion and
how to attribute profits to a permanent establishment, which are continuing preoccupations
of the Organisation for Economic Co-operation and Development and its member nations.
There is a rich history underlying the development of modern tax treaties, dating back to
the early work sponsored by the League of Nations in the 1920s. Even if some of this work
has been eclipsed by modern model income tax conventions and the terms of specific
bilateral income tax treaties, it is still important to know the kind of debate that has taken
place and the intellectual struggles that have accompanied the adoption of the treaty
conventions that play an increasingly important role in allocating international income,
particularly where tangible national associations of that income may be difficult to
establish. In this article, the authors reflect on the importance of tax treaty history and
comment on international developments aimed at making that history accessible. More >>
Note: If you would like to discuss any of the features, content, pricing, support and publishing schedule for the OECD Model Tax Convention, please contact us at info@itinet.org
ITI is committed to helping our clients have access to the latest international tax information. We understand that it is not always easy to access information on a timely basis so we encourage you to sign up for our Model Tax Convention "Alert" Service so that we can keep you updated on the OECD's Model Tax Convention developments. Register»