AD HOC GROUP ON INTERNATIONAL COOPERATION IN TAX MATTERS APPROVES REVISED MODEL CONVENTION
Press Release
ECOSOC/5822
AD HOC GROUP ON INTERNATIONAL COOPERATION IN TAX MATTERS APPROVES REVISED MODEL CONVENTION
19990507 NEW YORK, 7 May -- The Ninth Meeting of the Ad Hoc Group of Experts in International Cooperation in Tax Matters was held at United Nations Headquarters from 3 to 7 May.The Group of Experts was established by the Secretary-General in 1968. It is composed of 25 members, experts and tax administrators from 15 developing and 10 developed countries, pursuant to the Economic and Social Council's Resolution 1273 (XLIII) of 4 August 1967. Its task is to explore ways and means to facilitate the conclusion of tax treaties between developed and developing countries and improving international income allocation.
Mindful of the evolving international economic environment and globalization, the Group of Experts explores ways and means particularly in the international taxation area, to provide an enabling environment for trade expansion and increasing levels for international financial transfers on resource mobilization to achieve sustainable economic growth. In this connection, the Group of Experts is finalizing the revision of the United Nations Model Double Taxation Convention between Developed and Developing Countries with a view to providing guidelines for, among other things, appropriate tax treatment on new financial instruments, transfer pricing, tax havens and eliminating tax avoidance and evasion.
The Ninth Meeting of the Group of Experts was preceded by two meetings of a Focus Group established at its eighth meeting. The focus group met in New York on 9 and 10 December 1998 and in Amsterdam from 22 to 24 March 1999. The purpose of the focus Group was to assist the Group of Experts in the task of revising and updating the United Nations Model Double Taxation Convention between developed and developing countries.
At its Ninth Meeting, the Group considered agenda items concerning the revision and updating of the United Nations Model Double Taxation Convention, transfer pricing, exchanges of information on tax matters and training workshops.
The Group considered transfer pricing mechanisms adopted by multinational enterprises and their associated enterprises. The Group of
Experts acknowledges that transfer pricing also involves political considerations and is a multilateral problem, and that international consensus, while in principle desirable, poses many practical difficulties in its application.
In a related issue, the Group examined the progress made in the direction of advance pricing agreements and in the establishment of multilateral arbitration frameworks, and discussed future possibilities such as including guidelines for dispute resolution in tax treaties and the establishment of a framework for resolution of disputes or arbitration. Resolution of transfer pricing disputes may increase international investment by assuring investors that they will not be subject to double taxation because of inconsistent and incorrect transfer prices imposed by different countries.
It was agreed that training of tax administrators from developing countries and transitional economies in the methodologies and approaches to resolution of transfer pricing mechanisms was of utmost importance. The First Interregional Workshop in International taxation with the main focus on transfer pricing and other related issues, to be held in Amsterdam in March under the auspices of the United Nations in association with the International Bureau of Fiscal Documentation was the first step in this direction.
The Group of Experts considered the issue of additional clarity and freedom in exchanges of information in tax matters. The inability to obtain information from tax haven countries and tax information not available within its jurisdiction impedes the efforts of many tax administrations to deal effectively with the cases of tax avoidance and tax evasion. The issue of exchange of information, more particularly, in relation to tax havens was very important in the context of the globalization of world economies. But there is a growing disparity between the ability of developed and developing countries to obtain and provide the required information to a treaty partner. The developed countries need to provide information and assistance to developing countries to enable them to carry out exchanges of information procedures. Such procedures will also lead to effective control of harmful tax competition.
The major item on the agenda before the Ninth Meeting of the Group of Experts was the revision and update of the United Nations Model Double Taxation Convention between Developed and Developing Countries, which was last published in 1980. Some of the important subjects discussed during the meeting related to computation of taxable profits of permanent establishments, tax treatment of students and business trainees, treatment of fraud in transfer pricing issues between associated enterprises, deletion of monetary threshold in fixed base of professionals and tax sparing. The Group of Experts made useful recommendations for the amendment of articles and commentaries on the Model Convention, in the context of the evolution of new financial instruments, transfer of pricing distortions and significant changes brought about in the international economic, fiscal and financial environment in the last two decades. The Group of Experts also examined the modalities for revision and update of the United Nations Manual for the Negotiation of
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Bilateral Tax Treaties Between Developed and Developing Countries, which was last published in 1979.
The Group of Experts adopted by acclamation the United Nations Model Double Taxation Convention between Developed and Developing Countries (revised version) which will be published shortly.
The Ninth Meeting also discussed the arrangements and topics to be discussed in the Tenth Meeting of the Group of Experts, which is scheduled to take place in 2001.
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