The US Treasury is consulting on draft revisions to its Model Tax Convention, aimed at maintaining a consistency of approach to base erosion and profit shifting by multinational companies with that of the G20/OECD BEPS action plan. The US model, which contains the baseline text used by the US Treasury Department when it negotiates tax treaties, was last updated in 2006, and the revisions to the text are ‘intended to ensure that the US is able to maintain the balance of benefits negotiated under its treaty network as the tax laws of [its] treaty partners change over time, and to deny treaty benefits to companies that change their tax residence in an inversion transaction’, according to a statement.
‘The draft provisions we are releasing for comment reflect the fact that the tax regimes of our treaty partners are more likely to change over time than they have in the past, and that they sometimes change in ways that encourage BEPS, by multinational firms’, said Robert B. Stack, deputy assistant secretary for international tax affairs. ‘Treaties exist to eliminate double taxation, not to create opportunities for BEPS, and today’s updates fully take account of the new international tax environment. The draft provisions also articulate steps that would help prevent our treaty network from encouraging inversion transactions.’
The first set of draft provisions address issues arising from so-called ‘special tax regimes’, which provide very low rates of taxation in certain countries in particular to mobile income, such as royalties and interest. The second set of draft provisions is intended to reduce the tax benefits from a corporate inversion by imposing full withholding taxes on key payments such as dividends and base stripping payments, including interest and royalties, made by US companies that are ‘expatriated entities’ as defined under the Internal Revenue code. The proposal also makes revisions intended to prevent residents of third countries from inappropriately obtaining the benefits of a bilateral tax treaty. The Treasury Department intends to include in the next US model a new article to resolve disputes between tax authorities through mandatory binding arbitration. See www.1.usa.gov/1Hjx7kR.
The US Treasury is consulting on draft revisions to its Model Tax Convention, aimed at maintaining a consistency of approach to base erosion and profit shifting by multinational companies with that of the G20/OECD BEPS action plan. The US model, which contains the baseline text used by the US Treasury Department when it negotiates tax treaties, was last updated in 2006, and the revisions to the text are ‘intended to ensure that the US is able to maintain the balance of benefits negotiated under its treaty network as the tax laws of [its] treaty partners change over time, and to deny treaty benefits to companies that change their tax residence in an inversion transaction’, according to a statement.
‘The draft provisions we are releasing for comment reflect the fact that the tax regimes of our treaty partners are more likely to change over time than they have in the past, and that they sometimes change in ways that encourage BEPS, by multinational firms’, said Robert B. Stack, deputy assistant secretary for international tax affairs. ‘Treaties exist to eliminate double taxation, not to create opportunities for BEPS, and today’s updates fully take account of the new international tax environment. The draft provisions also articulate steps that would help prevent our treaty network from encouraging inversion transactions.’
The first set of draft provisions address issues arising from so-called ‘special tax regimes’, which provide very low rates of taxation in certain countries in particular to mobile income, such as royalties and interest. The second set of draft provisions is intended to reduce the tax benefits from a corporate inversion by imposing full withholding taxes on key payments such as dividends and base stripping payments, including interest and royalties, made by US companies that are ‘expatriated entities’ as defined under the Internal Revenue code. The proposal also makes revisions intended to prevent residents of third countries from inappropriately obtaining the benefits of a bilateral tax treaty. The Treasury Department intends to include in the next US model a new article to resolve disputes between tax authorities through mandatory binding arbitration. See www.1.usa.gov/1Hjx7kR.
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