Among other changes, the revisions update:
- Commentary on "beneficial owner" for purposes of the dividend, interest and royalty Articles
- Commentary on exchange of information in Article 26
- Certain issues related to Article 17, Artists and Sportsmen
- Certain issues on emissions permits and credits
- The treatment of termination payments.
Meaning of "beneficial owner" changes
The "beneficial owner" concept is essentially an anti-abuse rule designed to prevent treaty shopping by agents, nominees or conduit companies for the benefit of a resident of a third state in relation to dividends (Article 10), interest (Article 11) and royalty income (Article 12). The new guidance in the commentary to the convention indicates an "autonomous treaty meaning" related to "beneficial owner".
Article 26 (Exchange of information)
This update provides for information exchange on request when the information has "foreseeable relevance" in administering the taxes of the country making the request. Also included are interpretations of the standard of "foreseeable relevance" and the term "fishing expedition", as well as an optional default standard of time limits in which the information must be provided.
Article 17 (Artists and Sportsmen)
The country where a non-resident entertainer or sportsman is employed can tax the income from this employment under Article 17.
In particular, this change makes it necessary to determine:
- What is an entertainer or sportsman?
- What are the personal activities of an entertainer or sportsman?
- What are the source and allocation rules for activities performed in various countries?
Tax treaty issues related to emissions permits / credits
The typical tax treaty issue associated with the trading of emissions permits and credits is the treatment of the income from the alienation of these permits and credits by a resident of a contracting state.
Any income or gain from the alienation of property, including emissions permits and credits, generally applies under either Article 7 (Business Profits), Article 8 (Shipping, Inland Waterways Transport and Air Transport), Article 13 (Capital Gains) or Article 21 (Income). In addition, for agriculture and forestry enterprises, this income may fall under Article 6 (Income from Immovable Property). The update clarifies the classification of this income.
Tax treaty treatment of termination payments
Payments made after employment is terminated includes non-competition payments, severance payments or payments for unused holidays.
These payments are generally covered under Article 15 (Income from Employment) or Article 18 (Pensions). The update adds more information about the characterization of termination payments to ensure a consistent treatment of these payments for tax treaty purposes.
For more information, contact your KPMG adviser.
Information is current to August 05, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500