The Organisation for Economic Cooperation and Development (OECD) on 18 December 2017 published the condensed version of the 2017 edition of the OECD Model Tax Convention on income and capital (MTC 2017) used by many nations when negotiating bilateral tax treaties.
Among other revisions, the latest version of the treaty incorporates changes agreed to by nations in 2015 as a result of the OECD/G20 base erosion profit shifting (BEPS) project. These changes are designed to curtail tax avoidance by multinationals and improve the resolution of cross-border tax disputes.
The new treaty reflects BEPS agreements on countering hybrid mismatches, preventing tax treaty shopping and other tax treaty abuse, expanding the definition of permanent establishment, and improving the mutual agreement procedure (MAP) for resolving tax treaty disputes, including MAP arbitration.
An OECD official said last week that the full version of the Convention, which includes commentaries, non-member country positions, and historical notes, would be published in January.
While it is not binding on countries, OECD’s Model Tax Convention on Income and Capital provides clear modalities for taxing income and capital, with a view to eliminating double taxation in different jurisdictions.
According to the OECD, over 3000 tax treaties are based on the OECD Model.
It is expected that MTC 2017 would be a basis for negotiating future bilateral tax treaties and a benchmark for local legislation to prevent BEPS practices. In the same vein, countries with existing Double Tax Treaties may take advantage of the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS” (which Nigeria has adopted) to implement the tax treaty-related measures developed through the BEPS project.
In Nigeria, the OECD model has served as the basis on which most of the current double taxation treaties (DTTs) with other countries have been formulated. Nigeria currently has DTTs with thirteen countries namely: The United Kingdom, The Netherlands, Canada, South Africa, China, Philippines, Pakistan, Romania, Belgium, France, Mauritius, South- Korea and Italy.
Taxation is a significant consideration for foreign investors who seek to do business in Nigeria. This is in addition to other factors such as security, availability, and access to power, rule of law etc.
In 2012 the G20 initiated the Base Erosion and Profit-Shifting (BEPS) project, headed by the Organisation for Economic Co-operation and Development (OECD). This aimed to tackle and reduce tax planning strategies which artificially shifted corporate profits to low- or no-tax jurisdictions.
On 5 October 2015, the OECD published the final reports setting out its recommendations in relation to BEPS. These were set out in 15 “actions”, which addressed a number of common tax planning strategies. Action 7 of the project addressed ‘Preventing the Artificial Avoidance of Permanent Establishment Status’.
The Action 7 report is highly significant in the global mobility arena, where ensuring expatriates do not create a permanent establishment of their employing company abroad is always a critical consideration in structuring an individual’s assignment overseas.