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Organisation for Economic Cooperation and Development: Model Tax Convention Updated

(July 26, 2010) The Council of the Organisation for Economic Co-Operation and Development (OECD) approved an update to the OECD Model Tax Convention on July 22, 2010. The last update was made in 2008. As had been anticipated in the draft version of the 2010 update, a key change is the replacement of article 7 of the Convention and its commentary, to reflect work done by the OECD's Committee on Fiscal Affairs (CFA) on the attribution of profits to permanent establishments. (OECD Approves the 2010 Update to the OECD Model Tax Convention, OECD (July 22, 2010),,3343,en_2649_33747_45689952_1_1_1_1,00
; OECD Centre for Tax Policy and Administration [CTPA], THE 2010 UPDATE TO THE MODEL TAX CONVENTION, OECD (July 22, 2010), The OECD Council also adopted on the same day a report on this subject, updating a 2008 version of the report to take into account the revamping of article 7. (CTPA, 2010 REPORT ON THE ATTRIBUTION OF PROFITS TO PERMANENT ESTABLISHMENTS, OECD (July 22, 2010),

Other significant changes included in the 2010 update, which also stem largely from the work of the CFA, address the following issues:

  • the granting of tax-treaty benefits with respect to the income of collective investment vehicles (instruments whereby portfolio investors in securities, instead of making direct investments, pool their funds with those of other investors, and that may take the form, for example, of companies, trusts, or contractual arrangements);
  • the application of tax treaties to state-owned entities, including sovereign wealth funds;
  • tax treaties in relation to common telecommunication transactions; and
  • the application of article 15 of the Model Tax Convention, on income from employment, to employees who work in a foreign country for a short duration. (OECD Approves the 2010 Update to the OECD Model Tax Convention, supra.)

Additionally, the update includes changes made by OECD members and non-members to their observations, reservations, or positions on the Convention – most notably, “the elimination, previously approved by the OECD Council, of all the reservations and positions contrary to the international tax standard on exchange of information that is incorporated in Article 26 (Exchange of Information).” (Id.) That standard became universally endorsed in 2009, after the four OECD countries that had opposed article 26 – Austria, Belgium, Luxembourg, and Switzerland – lifted their reservations to it. (Promoting Transparency and Exchange of Information for Tax Purposes: A Background Information Brief, OECD (July 15, 2010), Formerly, 28 non-OECD economies had set forth their positions on issues in the articles and commentaries of the Convention. With the update, that number is now 31, with the addition of new positions set out by Hong Kong, Indonesia, and the United Arab Emirates. (OECD Approves the 2010 Update to the OECD Model Tax Convention, supra.)

A revised condensed version of the Convention, reflecting the changes made by the update, is to be published in September 2010. (Id.; see also Wendy Zeldin, Organisation for Economic Cooperation and Development: Proposed Changes to Model Tax Convention Commentary and Other Developments, GLOBAL LEGAL MONITOR (Feb. 18, 2010),//