Transfer Pricing in Canada, the United States and around the World

Transfer Pricing  in Canada, the United States and around the World

RBRT Comments on the Draft Contents of the 2017 Update to the OECD Model Tax Convention

The OECD has just released the Comments on the Draft Contents of the 2017 Update to the OECD Model Tax Convention.

The Draft Contents is available here.

Read RBRT’s comments below.

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Comments on the Draft Contents of the 2017 Update to the OECD Model Tax Convention

August 1st, 2017
Tax Treaties, Transfer Pricing and Financial Transactions Division
OECD/CTPA
By email: taxtreaties@oecd.org

To whom it may concern:

We are pleased to comment on selected matters included in the Draft Contents of the 2017 Update to the OECD Model Tax Convention (OECD MTC, the draft taken as a whole) through the consultation taking place from July 11, 2017 to August 10, 2017.

This document may be posted on the OECD website. Full credit goes to Robert Robillard, RBRT Inc. [1]

1. Article 4, changes to paragraph 13 of the Commentary

Suggested changes to paragraph 13 of the Commentary on Article 4 of the OECD MTC intend to provide clarifying explanations on the notion of “permanent home” for the eventual implementation of the tie-breaker rules found in Article 4(2)a) of the OECD MTC.

These explanatory comments read as follows on page 67 of the draft (see last sentence in bold and italic characters):

“13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc.). For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has the possession of the house and the possibility to stay there.

Regarding the suggested changes included in the draft, we believe that greater clarity could be achieved by adding the following sentence at the end of the paragraph (see the underlined sentence):

“For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has the possession of the house and the possibility to stay there. A house is deemed unavailable when it is either rented out on a weekly, monthly, or any other longer or shorter length of period provided it generates income from a source.

The first part of the suggested sentence (underlined) would deal in itself with the notion of shorter or longer renting periods.

The last part of the sentence (underlined and bold characters: “provided it generates income from a source”) relates to new paragraph 1 (see page 11 of the draft).

It specifically addresses irregular leasing activities of an house that may arise from the use of online marketplace such as Airbnb for purposes other than direct commercial activities, in which case the “home” should be deemed as “permanent” for the purpose of the tie-breaker rules found in Article 4(2)a).

2. Article 5, new paragraph 1.1 of the Commentary

We would assume that comments are in fact invited with respect to new paragraph 5 instead of paragraph 1.1, as it is numbered in the preamble of the draft. New paragraph 5 to the Commentary on Article 5 read as follows on page 71 of the draft:

  • “5. In many States, a foreign enterprise may be allowed or required to register for the purposes of a value added tax or goods and services tax (VAT/GST) regardless of whether it has in that State a fixed place of business through which its business is wholly or partly carried on or whether it is deemed to have a permanent establishment in that State under paragraph 5 of Article 5. By itself, however, treatment under VAT/GST is irrelevant for the purposes of the interpretation and application of the definition of permanent establishment in the Convention; when applying that definition, one should not, therefore, draw any inference from the treatment of a foreign enterprise for VAT/GST purposes.”

Although accurate in its substance, this paragraph highlights, once more, the unnecessary compliance burden that is created by various criteria for VAT/GST liability around the world. It also highlights the pressing needs for a common criterion to properly determine liability to VAT/GST on a worldwide basis.

In this day and age of e-commerce, companies all across the world must deal on a regular basis with a nightmarish burden to determine liability to VAT/GST in any given foreign country, state, province, territory, county or even city. And this, for no other valid reasons than tax-starved governments’ blind unwillingness to facilitate business expansion and employment creation in an orderly fashion.

In the United States alone, there are over 45 sales tax regimes.[2] Canada displays specific sales tax regimes in Quebec, British-Columbia, Saskatchewan and Manitoba on top of the federal HST regime found in the other provinces and territories.

Smaller businesses simply cannot be expected to ensure compliance with every sales tax regime on an ongoing basis without incurring significant and unjustifiably high costs.

[1] Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Economics, M.A.P., is Senior Partner at RBRT Fiscalité / Tax (RBRT Inc.) in Canada and blogger on transferpricinghub.com. He teaches at Université du Québec à Montréal; 514‑742-8086; robertrobillard@rbrt.ca. Robert is a former Competent Authority Official and Audit Case Manager at the Canada Revenue Agency.

[2] For an overview, see https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Economics. M.A.P.
Senior Partner, RBRT Inc.
Université du Québec à Montréal
514-742-8086
robertrobillard@rbrt.ca

August 1st, 2017

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Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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À propos de 
Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P. is Founder and Senior Partner at RBRT Fiscalité / Tax (RBRT Inc.), an accounting firm which specializes in Canadian and international taxation. Robert is also a lecturer in several tax training seminars at RBRT Concepts inc. Robert is a former Officer of the Canadian Competent Authority and a former Case Manager at the Canada Revenue Agency. Robert bas been involved in taxation for over 14 years. Robert can be reached by email at robertrobillard@rbrt.ca or by phone at 514-742-8086.