Offshore Tax Planning

The OECD is about to revise its Model Tax Convention, and has issued a consultation document. The consultation period will close on 27th April 2005.The OECD says the contents of the 2005 update result primarily from the following previously released documents:

• "Proposed changes to the Commentary on Article 8": that report was first released for public comments in April 2004. A few changes were made on the basis of the comments received and the final version of the report was
  made public on 15 December 2004.
  "Cross-border income tax issues arising from employee stock-option plans": the final version of that report, which was approved by the Committee on Fiscal Affairs on 16 June 2004, was made public on 3 September 2004. The final version took into account comments received on two previous drafts of the report which had been made public in March 2002 and July 2003.
  "Proposed changes to the Commentary on Article 5 concerning multiple permanent establishments": a draft version of that report was released for public comments on 12 April 2004. A number of changes were made on the basis of the comments received, which were supportive of the amendments to the Commentary proposed in the draft.
  "Changes to Articles 25 and 26 of the Model Tax Convention": the document that includes these changes was approved by the Committee on Fiscal Affairs on 1 June 2004 and made public on 23 July 2004.
  
• "Technical issues related to cross-border pensions": a draft version of that report was released for public comments on 14 November 2003. A number of changes were
  made on the basis of the comments received.

The update also includes the following technical changes to the Model Tax Convention:

• A change to paragraph 31 of the Introduction to clarify that no reservation is required to indicate that a country merely wishes to modify the wording of a provision of the Model to confirm or incorporate an interpretation of that provision put forward in the Commentary.
  The addition of commas to the French version of subparagraph 2 b) of Article 15 to conform to the English version.
  Changes to the Commentary on Article 11 to include alternative provisions that provide for the exclusive residence taxation of all interest or of some categories thereof and to explain the reasons underlying these provisions.
  Changes to paragraphs 29 and 30 of the Commentary on Article 11 to address more accurately the triangular problem arising in the case of interest borne by a permanent establishment located in a third state.
  Changes to the Commentary on Article 12 to clarify when payments for forbearance to grant rights to use property constitute royalties.
  Changes to the Commentary on Articles 10, 11 and 13 to include a cross-reference to the suggested provision dealing with the investment income of pension funds found in the Commentary on Article 18.
  A change to paragraph 4 of the Commentary on Article 15 to clarify how to take account of overlapping periods when applying the moving 12-month limit of subparagraph 2 b) of Article 15.
  A minor change to paragraph 10 of the Commentary on Article 15 to indicate that States may wish to deal bilaterally with the situation of employees working on trucks and trains travelling between countries.
  
• Changes to the Commentary on Article 20 to clarify the relationship between Articles 15 and 20.