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History of the OECD Model Tax Convention E-mail
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History of the OECD Model Tax Convention
Early in the twentieth century, as economic exchanges among countries increased and people were beginning to become more mobile, the issue quickly arose of double taxation for a same taxable event for a same period of time. Everyone considered this to be an obstacle to the development of economic cooperation between countries.
Member countries of the Organization for Economic Cooperation and Development (OECD)—20 to start with, currently 30 (see attached list)—have long been aware of the necessity to clarify, unify and guarantee taxation of taxpayers with commercial, industrial, financial or other activities in other countries, by using common solutions to cases of identical double taxation applied to all countries.

This is the main goal of the OECD Model Tax Convention on Income and Capital, which makes provision resolving the most commonly encountered problems of international juridical double taxation.

According the OECD Council recommendation (See Appendix), member countries should follow this model when they sign or revise their bilateral conventions by conforming to the Model Convention and by interpreting it according to the commentaries therein and taking into consideration the reservations included and that their tax administrations follow the Commentaries on the Articles of the Model Tax Convention, as modified from time to time and under reservation of the observation they have made on these, when applying and interpreting the provisions of their bilateral tax conventions that are based on these Articles.

As early as 1921, the League of Nations, forerunner to the United Nations, had already began working on the first model bilateral conventions aimed at suppressing double taxation through bilateral conventions, which they completed in 1928.

The first model convention came out of Mexico in 1943, followed by that from London in 1946, whose principles were largely copied in the majority of conventions signed in the ten years following their publication. This represented major progress in the area, even if none of these model conventions were accepted in their entirety or unanimously, and if they differ considerably in several major areas and have gaps.

On 25 February 1955, the OECD adopted its first Recommendation on double taxation, in an effort to harmonize and develop the network of conventions signed by the member countries. At the time, 70 general bilateral conventions had been signed between the countries that are now OECD members, some of those countries not having signed any.

In 1956, the OECD Fiscal Committee began to elaborate a draft convention that would provide effective solutions to problems of double taxation among OECD member countries and that would be acceptable by all the member countries.

Interim reports were published in 1958 and 1961, before the final project was presented and adopted on 30 July 1963 under the title “Draft Double Taxation Convention On Income and Capital”, with recommendations to OECD member countries to conform to this conventions when signing or revising their bilateral conventions.

In 1971, the Committee of Fiscal Affairs, which succeeded the Fiscal Committee, revised the 1963 draft convention and the related commentaries. This work led to the 1977 publication of a new model convention and new commentaries, entitled: “Model Double Taxation Convention on Income and Capital”, OECD, Paris, 1977.

It became clear to the Committee of Fiscal Affairs that it was necessary to continually revise the Model Convention in order to adapt it to new economic conditions, new technology, major changes in the way cross-border transactions occur, to the process of globalization and liberalization of economies, and also to face new, perfected tax evasion and fraud strategies.

In 1991, in fact, noting that the Model Convention revision had become a continuous process, the Committee of Fiscal Affairs decided to adopt the idea of a periodically updated Model Convention, with quicker periodic updates that made it possible not to wait for the complete revision.

As of 1992, the Model Convention was published in loose-leaf format, thus proving that the revised model was not the completion of earlier versions
but the beginning of a first step in a process of continual revision, thus reflecting at any time the exact position of the Member countries.

The growing influence of the OECD model beyond member countries led the committee to open the revision process up to non-member countries, to international organizations and to other interested parties.

The 1997 update takes into consideration the positions of a certain number of non-member countries.




APPENDIX
RECOMMENDATION OF THE OECD COUNCIL
CONCERNING THE MODEL TAX CONVENTION ON
INCOME AND CAPITAL
(Adopted by the Council on 23 October 1997)


THE COUNCIL,
Having regard to article 5 b) of the Convention on the Organization for Economic Co-operation and Development of 14 December 1960;
Having regard to the Recommendation of the Council dated 31 March 1994 concerning the Model Tax Convention on Income and Capital [C(94)11/FINAL] and the Recommendation of the Council dated 21 September 1995 amending the Appendix to that previous Recommendation [C(95)132/FINAL];

Having regard to the Report of the Committee on Fiscal Affairs of 24 June 1997 entitled "The 1997 Update to the Model Tax Convention" [DAFFE/CFA/WP1(97)10/REV2] (hereinafter referred to as "the 1997 Report");

Considering the need to remove the obstacles that international juridical double taxation presents to the free movement of goods, services, capital, and persons between countries by the conclusion of conventions for that purpose;

Considering also the need to harmonise existing bilateral conventions on the basis of uniform principles, definitions, rules, and methods and to extend the existing network of such conventions to all Member countries and where appropriate to non-member countries;

Considering further the need to encourage the common application and interpretation of the provisions of tax conventions that are based on those of the Model Tax Convention on Income and on Capital (hereinafter referred to as the "Model Tax Convention");

Considering that efforts made in this direction by Member countries have already produced substantial results and that the proposed revisions to the Model Tax Convention will make it possible to confirm and extend existing international co-operation on tax matters;

Taking note of the Model Tax Convention and the Commentaries thereon (as last modified by the 1997 Report), which may be amended from time to time hereafter;

I. RECOMMENDS the Governments of Member countries:

  1. To pursue their efforts to conclude bilateral tax conventions on income and on capital with those Member countries, and where appropriate with non-member countries, with which they have not yet entered into such conventions, and to revise those of the existing conventions that may no longer reflect present-day needs;

  2. When concluding new bilateral conventions or revising existing bilateral conventions, to conform to the Model Tax Convention, as interpreted by the Commentaries thereon;

  3. That their tax administrations follow the Commentaries on the Articles of the Model Tax Convention, as modified from time to time, when applying and interpreting the provisions of their bilateral tax conventions that are based on these Articles.

II. INVITES the Governments of Member countries to continue to notify the Committee on Fiscal Affairs of their reservations on the Articles and observations on the Commentaries.


III. INSTRUCTS the Committee on Fiscal Affairs to continue its ongoing review of situations where the provisions set out in the Model Tax Convention or the Commentaries thereon may require modification in the light of experience gained by Member countries, and to make appropriate proposals for periodic updates.


IV. DECIDES to repeal the Recommendations of the Council of 31 March 1994 and 21 September 1995 [C(94)11/FINAL and C(95)132/FINAL].
 
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