Update Of The OECD Model Tax Convention

On July 15th 2014, the OECD published its 2014 update of the Model Tax Convention ("2014 OECD Update"). This update is the outcome of the work accomplished between 2010 and the end of 2013. It does not however take into account the OECD conclusions of the "Action Plan on Base Erosion and Profit Shifting" (BEPS).

The 2014 OECD Update will be of interest to Luxembourg practitioners for various reasons. Aside from helpful clarifications in the field of taxation of Artists and Sportsmen (article 17) and some other questions of rather marginal interest regarding emissions permits/credits, the update is of major interest in relation to three recurrent problems in Luxembourg tax practice.

With respect to exchange of information, the update includes modifications to article 26 and its commentary which have been agreed by the OECD Council on July 17th 2012. The question on "foreseeable relevance", which is key in order to allow exchange of information upon request in the banking sector, remains at the heart of the issue, together with the requirement to identify, to a certain extent, the relevant taxpayer. The 2014 OECD Update should however not substantially impact Luxembourg judicial practice in this field, which, like the 2014 OECD Update, tries to balance providing as much international assistance as possible with preventing fishing expeditions.

The details included in the 2014 OECD Update regarding the definition of "beneficial ownership" will be of major interest for practitioners. It is common knowledge nowadays that the sole payment of income from movable property (royalties, interest, dividends) to a Luxembourg resident recipient is not enough to allow for entitlement to the double tax treaty benefits (reduction or elimination) with regard to the withholding tax suffered in the source country.

One needs to make sure that the recipient of the income is also the "beneficial owner". The 2014 OECD Update...