LOB Provisions in the 2015 Draft U.S. Model Tax Treaty

On May 20, the Treasury Department released for public comments five proposed changes to the 2006 U.S. Model Income Tax Convention in lieu of issuing a complete revised model. The five proposals focus on different aspects of perceived treaty abuse.

According to Treasury, new proposed article 1(7) provides ‘‘more robust rules on the availability of treaty benefits for income that is not subject to tax by a treaty partner because it is attributable to a permanent establishment located outside the country.’’ New draft article 3(1)(l) defines the phrase ‘‘special tax regime’’ as a special low rate of tax, with exceptions, resulting from legislation, regulation or administrative practice in the resident state on an item of income. Draft articles 11(2)(c), 12(5)(a), and 21(3)(a) are the operative provisions that deny treaty benefits for related-party payments benefiting from a special tax regime.

This article also appear in Tax Notes International Volume 80, Number 7 on November 16, 2015.