The OECD Model Tax Convention and double tax treaties
The OECD Model Tax Convention is the template from which most bilateral double tax treaties are drafted, and its Commentary is the main aid to interpreting them. It allocates taxing rights between the residence and source states, defines when a permanent establishment exists, and caps source-state tax on dividends, interest and royalties. It is not itself a treaty in force between any two countries; the bilateral treaty, as signed and ratified, governs.
Key facts
| Status | A model. Only the signed bilateral treaty binds |
|---|---|
| Residence tie-breaker | Permanent home, centre of vital interests, habitual abode, nationality; mutual agreement for companies |
| Permanent establishment | Fixed place of business, dependent agent, and construction sites over twelve months in the model |
| Dividend model rates | 5% for substantial corporate holdings, 15% otherwise |
| Interest and royalties | 10% on interest in the model; royalties taxable only in the residence state |
| Anti-abuse | Principal purpose test introduced by the 2017 update and the BEPS Multilateral Instrument |
Opens the assistant with OECD Model Tax Rules already selected. Answers cite the law, guidance and cases they rest on.
Reading a real treaty against the model
Treaties signed by GCC states often depart from the model: service permanent establishment clauses with day-count thresholds, technical service fee articles, and different withholding caps. The assistant retrieves the bilateral treaty text for the named partner alongside the model and shows where they differ, because the treaty, not the model, decides the rate.
The Multilateral Instrument
The BEPS Multilateral Instrument modifies covered treaties without renegotiating them, inserting the principal purpose test and, where both parties opted in, changes to the permanent establishment and dispute resolution articles. Whether a given treaty is covered, and which options each party chose, is a matching exercise the assistant can walk through.
Frequently asked questions
- Is the OECD Model Tax Convention binding?
- No. It is a model and commentary. Only a bilateral treaty that two states have signed and ratified is binding, and it may depart from the model.
Primary sources
- OECD — Model Tax Convention on Income and on Capital
- Organisation for Economic Co-operation and Development (OECD)
Related guides
Disclaimer: This page provides general tax information based on publicly available primary sources, reviewed on the date shown. Rules are conditional and change; the page may not reflect a change made after that date, and it is not a substitute for advice from a qualified tax professional on your specific situation.