US Treasury publishes revised Model Income Tax Convention

The US Treasury Department has published a revised Model Income Tax Convention (2016 Model), which is used as the ‘baseline text’ for the negotiation of tax treaties and replaces the version published in 2006.

The 2016 Model contains a number of technical amendments developed in the context of treaty negotiations which do not represent substantive changes. It also includes a number of new provisions, including:

·       not reducing withholding taxes on payments of highly mobile income (such as royalties and interest) that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime;

·       an obligation on treaty partners to consult with a view to amending the treaty as necessary when changes in the domestic law of a treaty partner draw into question the treaty’s original balance of negotiated benefits and the need for the treaty to reduce double taxation; and

·       measures to reduce the tax benefits of corporate inversions, in particular denying reduced withholding taxes on US source payments made by companies that engage in inversions to related foreign persons.

The preamble to the 2016 Model invites comments and examples that illustrate dividend or interest income that should be considered to emanate from an active trade or business in the residence state. The deadline for public comments is 18 April 2016.

The Treasury Department also announced that it is preparing a detailed technical explanation of the 2016 Model, which it intends to publish in Spring 2016.

See US Treasury Department press release http://1.usa.gov/1OgK55I.