United States: U.S. Treasury Department Releases Proposed Model Treaty Provisions

On May 20, 2015, the U.S. Treasury Department released for public comment draft updates to the U.S. model income tax convention and its accompanying Technical Explanation (collectively, the “Model Treaty”), which was last updated in 2006. The Model Treaty is the template that Treasury uses as its starting point in negotiating U.S. bilateral tax treaties and protocols, thereby representing Treasury’s view of tax treaty policy. The proposed changes address: (i) special tax regimes; (ii) payments from expatriated entities; (iii) exempt permanent establishments; (iv) revisions to the Model Treaty’s limitation on benefits provision; and (v) subsequent changes in law.

Some of these provisions are intended to avoid instances of income that Treasury believes are not taxed sufficiently by either country (e.g., “stateless income”), consistent with the OECD/G20 Base Erosion and Profit Shifting (“BEPS”) Project (notably, Action 6 of the BEPS Project). Other prov