The 2014 Update, as adopted by the OECD Council on 15 July 2014, includes changes that were previously released for comments, including the meaning of “beneficial owner.” Numerous additions and deletions to Commentaries on various Articles, including positions of non-member countries, are also included. A link to the Update is provided for reference:
- Article 5 Commentary: new views by Germany, Estonia, and Israel.
- Article 9 Commentary: Hungary (newly added) and Slovenia reserve the right to specify that a correlative (i.e., offsetting) adjustment will be made only if they consider that the primary adjustment is satisfied.
- The term “beneficial owner” does not have reference to any technical meaning under domestic law, thus it should not be used in a narrow technical sense, rather, it should be understood in its context and in light of the object and purposes of the Convention including avoiding double taxation and the prevention of fiscal evasion and avoidance.
- The term “beneficial owner” does not deal with other cases of treaty shopping, which can be addressed in specific anti-abuse treaty provisions, general anti-abuse rules (GAAR), substance-over-form or economic substance approaches.
- Article 13 Commentary: With respect to paragraph 3.1, Austria and Germany hold the view that when a new tax treaty enters into force, these countries cannot be deprived of the right to tax the capital appreciation which was generated in these countries before the date when the new treaty became applicable.
- Article 26 Commentary: The Commentary was expanded to develop the interpretation of the standard of “foreseeable relevance” and the term “fishing expeditions,” i.e. speculative requests that have no apparent nexus to an open inquiry or investigation. The Commentary further provides for an optional default standard of time limits within which the information is required to be provided unless a different agreement has been made by the competent authorities. The examples provided are to demonstrate the overarching purpose of Article 26 not to restrict the scope of exchange of information but to allow information exchange “to the widest possible extent.”
The Update requires a comprehensive review to determine potential implications, including beneficial ownership restrictions and ways of working by competent authorities. Such review should distinguish changes to the Articles versus additions or deletions to the Commentary interpreting such Articles. Note that the OECD BEPS changes will be an addition to this Update.