The 2021 version of the United Nations Model Tax Convention was recently released ahead of the 24th Session of the Committee of Experts on International Cooperation in Tax Matters, which is being held from 4 to 7 April and 11 to 12 April 2022. This is the fifth edition of the Model Convention. The most important changes included in the 2021 version of the UN Model address concerns expressed by developing countries regarding tax treaty obstacles to the taxation of foreign enterprises on income from automated digital services and on gains on offshore indirect transfers. The 2021 UN Model also features new guidance on the application and interpretation of the definition of permanent establishment, the concept of beneficial owner, and the application of the Model's provisions to collective investment vehicles, pensions funds, and real estate investment trusts.
Further details of the changes are summarized in the Model Convention as follows:
Main features of this revision of the United Nations Model Tax Convention
This latest revision of the United Nations Model Tax Convention continues an ongoing review process intended to ensure that the contents of the Model keep up with developments, including in country practice, new ways of doing business and new challenges.
This review process led the Committee to address concerns expressed by both developing and developed countries with respect to the tax treaty treatment of digitalized services. To do so, the Committee established a Subcommittee on Tax Challenges Related to the Digitalization of the Economy, which drafted a new Article on Income from Automated Digital Services, together with its Commentary. That Article (Article 12B) and its Commentary, which were adopted at the twenty-second session of the Committee (April 2021) constitute a main part of the changes included in this new version of the United Nations Model Tax Convention.
Another important part of these changes consists of the new paragraphs 6 and 7 that were added to Article 13 (Capital gains) in order to address concerns expressed by developing countries with respect to tax treaty obstacles to the taxation of gains on the direct transfer of some types of property that are inextricably linked to their territory as well as gains on so-called "offshore indirect transfers" in situations where other provisions of Article 13 would allow the taxation of gains from the direct transfers of such property.
The other substantive changes made to the Articles of the United Nations Model Tax Convention through this latest revision are as follows:
A number of changes were also made to the Commentaries on the Articles of the Model. These first include changes that reflect the above-mentioned additions and changes to the Articles. They also include changes that were made as a result of the work done with respect to a number of technical issues related to the interpretation and application of the Articles, most notably the definition of permanent establishment in Article 5, the concept of beneficial owner in Articles 10, 11, 12, 12A and 12B, and the application of the provisions of the Model to collective investment vehicles, pensions funds and real estate investment trusts.
In the future, if the Committee so decides, any conclusions on changes to the United Nations Model Tax Convention that could be useful may be presented as a Committee report which may help shape the next revision of the Model. The work of the Committee, including its work on the Model, can be followed through the Committee's website.