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Beneficial ownership: OECD revisions do little to increase clarity, says PwC

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The OECD Committee on Fiscal Affairs has invited comments on comments on revised proposals concerning interpretation and application of Article 5 (permanent establishment) in the OECD Model Tax Convention. A working group has examined issues relating to the definition of permanent establishment, such as aspects of ‘business restructurings’ and ‘the application to electronic commerce of the current treaty rules for the taxation of business profits’. The intention is to finalise the proposals for inclusion in the next update to the convention, scheduled for 2014. Comments are invited before 31 January 2013.

Beneficial ownership

The CFA has also released a revised discussion draft on the meaning of ‘beneficial owner’, and has invited comments before 15 December 2012 on Articles 10, 11 and 12 of the convention.

PwC said the revisions would do ‘little to increase clarity’. The rules determining the beneficial owners of dividends, interest and royalties can affect the level of withholding tax paid by corporates, the firm explained. There had been ‘considerable uncertainty’ in recent years over whether a recipient should benefit from a reduced withholding tax rate otherwise available under a tax treaty between the countries of the payer and the recipient.

PwC tax partner Richard Collier said: ‘The concept of beneficial ownership has been mired in confusion and controversy over recent years. The OECD has provided some clarification on how payments being passed on affect beneficial ownership of income received, but not enough.  For instance the new wording refers to “unrelated payments” without any explanation of what it means for a payment to be related or unrelated. Beneficial ownership is a big issue for many international businesses which must comply with complex international and domestic tax rules. Given the current focus on corporate tax affairs, it is more important than ever that the rules affecting the level of tax paid are clear.’

Emissions permits and credits

A third consultation invites comments on application of the convention to the cross-border trading of emissions permits. Comments are invited before 15 January 2013.