2017 update to the OECD Model Tax Convention approved | KPMG | GLOBAL
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OECD: 2017 update to the OECD Model Tax Convention approved

2017 update to OECD model treaty is approved

The Organisation for Economic Cooperation and Development (OECD) reported that the OECD Council on 21 November 2017 approved the contents of the 2017 Update to the OECD Model Tax Convention (the OECD Model). The 2017 update, which was previously approved by the Committee on Fiscal Affairs on 28 September 2017, will be incorporated in a revised version of the OECD Model that will be published in the next few months.


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As noted in an OECD release, the 2017 update primarily comprises changes to the OECD Model that were developed through the OECD/G20 BEPS Project. The introduction to the contents of the 2017 update describes in detail all of these changes, including: 

  • Changes to the Title and Preamble of the OECD Model, changes to the section of the Commentary on Article 1 (Persons covered) on “Improper use of the Convention”, and a new Article 29 (Entitlement to Benefits), which includes in the OECD Model a limitation-on-benefits (LOB) rule (simplified and detailed versions), an anti-abuse rule for permanent establishments situated in third States, and a principal purposes test (PPT) rule (these changes were contained in the Report on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) or were finalised as part of the follow-up work on Action 6).
  • Changes to Article 5 (Permanent establishment) and its Commentary resulting from the Report on Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and follow-up work on Action 7.
  • Changes to Article 25 (Mutual agreement procedure) and to the Commentaries on Articles 2, 7, 9 and 25 contained in the Report on Action 14 (Making Dispute Resolution Procedures More Effective) or which that Report indicated would be developed as part of the follow-up work on Action 14—changes related to the OECD Model MAP arbitration provision and its Commentary are intended to reflect the MAP arbitration provision developed in the negotiation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) adopted on 24 November 2016.

The 2017 update also includes certain other changes to the OECD Model that were previously released for comments and were not developed as part of the work on the treaty-related BEPS measures. These changes include: 

  • Changes to the Commentary on Article 5 integrating the changes resulting from the work on Action 7 of the BEPS Project with previous work on the interpretation and application of Article 5. The proposals that resulted from that earlier work (based on the pre-2017 update version of Article 5) were originally published in an October 2011 discussion draft, discussed at a 7 September 2012 public consultation and subsequently released in a revised October 2012 discussion draft.
  • Changes to Article 8 (International shipping and air transport), related changes to subparagraph 1 e) of Article 3 (the definition of “international traffic”) and paragraph 3 of Article 15 (concerning the taxation of the crews of ships and aircraft operated in international traffic), and consequential changes to Articles 6, 13 and 22. The changes include related Commentary changes (these changes were released in a November 2013 discussion draft).

The 2017 update additionally includes the following four changes that were included in an 11 July 2017 public release:

  • Changes to the Commentary on Article 4 (Resident) related to the issue whether a house rented to an unrelated person can be considered to be a “permanent home available to” the landlord for purposes of the tie-breaker rule in Article 4(2) a).
  • Changes to the Commentary on Article 4 intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c).
  • The addition of a new paragraph to the Commentary on Article 5 which indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition—in response to public comments, an addition was made to clarify the paragraph and to provide a cross-reference to similar language in the Report on Action 1 (Addressing the Tax Challenges of the Digital Economy) and to the International VAT/GST Guidelines.
  • Deletion of the parenthetical reference “(other than a partnership)” from subparagraph 2 a) of Article 10 (Dividends), which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in circumstances in which the new Article 1(2) (the transparent entity provision) would apply. 

The 2017 update includes the changes and additions made to the observations and reservations of OECD member countries and to the positions of non-OECD economies. 

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