On February 29, 2016 the OECD published a Discussion Draft that includes proposals for changes to the OECD Model Tax Convention concerning the treaty residence of pension funds. The OECD invites the public to comment on the Draft.

Comments should be sent by April 1, 2016 at the latest by e-mail and in a in Word format (the e-Mail address can be found in the Discussion Draft). Comments should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA. The OECD emphasizes that all comments on the discussion draft will be made publicly available. The OECD also states that comments submitted in the name of a collective “grouping” or “coalition”, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting.

In October 2015 the OECD issued “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances - Action 6 2015 Final Report”. In Paragraph 12 and 13 of the “Introduction” – “Further work to be done” the following is stated (Page 17 of the report):

12.  Additional work will also ensure that a pension fund should be considered to be a resident of the State in which it is constituted regardless of whether that pension fund benefits from a limited or complete exemption from taxation in that State. This will be done through changes to the OECD Model Tax Convention, to be also finalised in the first part of 2016, that will ensure that outcome for funds that will meet a definition of “recognised pension fund” which will likely include the following elements:

• the definition will refer to entities or arrangement established in a State and constituted and operated exclusively or almost exclusively to administer or provide retirement or similar benefits to individuals;
• the entities or arrangements to which the definition will apply will need to be treated as separate persons under the taxation laws of that State;
• in order to cover only funds that the tax law recognises as pension funds, these entities will need to be regulated as pensions funds by the State in which they are established;
• the definition will also need to cover entities and arrangements that are constituted and operated exclusively or almost exclusively to invest funds for the benefit of entities or arrangements that will themselves qualify as “recognised pension funds”

13.  That definition will need to be accompanied by detailed Commentary that will explain some of these requirements, in particular the requirement that a pension fund “be regulated as such”. Consultation with stakeholders will be necessary to ensure that the definition and its Commentary cover the main forms of pension funds that currently exist.

As a follow-up to the report published in October 2015, the OECD now issued the Discussion Draft for comments. The Discussion Draft that the OECD includes draft changes to Articles 3 and 4 of the OECD Model Tax Convention, and to the Commentary on these Articles, that will ensure that a pension fund is considered to be a resident of the State in which it is constituted for the purposes of tax treaties.

Click here to be forwarded to the Public Discussion Draft “TREATY RESIDENCE OF PENSION FUNDS” as released for public comments by the OECD on February 29, 2015.

Click here to be forwarded to “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances - ACTION 6: 2015 Final Report” as published by the OECD in October 2015.

Click here to be forwarded to International Tax Plaza’s very complete BEPS LIBRARY as available on International Tax Plaza.

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