The growth of investment flows between countries depends to a large extent on the prevailing investment climate. The prevention or elimination of international double taxation in respect of the same income substantially contributes to such a climate. The United Nations Model Double Taxation Convention between Developed and Developing Countries (the UN Model) favors avoiding double taxation, but in such a way that, when compared with some other prevalent Model treaties, preserves more so called “source country” (i.e., country of investment) taxation rights under a tax treaty as compared to those of the “residence country” of the investor. This is an approach that developing countries have found especially helpful in their quest to balance a healthy investment climate with the need to finance development through domestic resource mobilization.
The main objectives of this revision of the UN Model have been to take account of developments in the area of international tax policies relevant to countries generally. The main changes in the new version in comparison to the previous one include:
(1) An updated version of the Article 1 that includes a fiscally transparent entity clause, and a saving clause that clarifies that residence taxation is generally preserved under tax treaties;
(2) A new Article 12A to provide for source taxation of fees for technical services without the need for a “permanent establishment”;
(3) A new Article 29 that contains provisions relating to entitlement to treaty benefits; and
(4) A series of new versions of several Articles aimed at curbing base erosion, tax avoidance and tax evasion, emphasizing these important parts of the object and purpose of tax treaties.
The UN Committee of Experts on International Cooperation in Tax Matters, the mandate of which includes the update of the UN Model, intends to update this publication more frequently to take stock of constant changes and new developments in the world economy, with a particular view to the situations and priorities of developing countries.