UN Tax Committee Releases 2025 UN Model Tax Convention

The significant changes are summarized below:

1. introducing a subject-to-tax rule applicable to payments of income between related and unrelated parties to address cases of unintended low taxation or double non-taxation. The rule, introduced in the new paragraph 3 of article 1, provides that treaty limitations on source-state taxation of items of cross-border income do not apply unless that income is subject to tax in the residence state at a rate not lower than a minimum rate to be agreed through bilateral negotiations;
2. introducing article 5A on Income from the Exploration for, or Exploitation of, Natural Resources, which provides that a non-resident enterprise is deemed to have a permanent establishment (PE) in the other state unless activities relating to the exploration for, or exploitation of, natural resources are carried on in that state for a period or periods not exceeding, in the aggregate, 30 days within any twelve-month period commencing or ending in the fiscal year concerned;
3. reordering article 8 by revising Alternative A to allow the source state to tax income from international transport;
4. expanding the definition of royalties under article 12 to cover payments for software regardless of whether they constitute consideration for the use of copyright;
5. introducing article 12AA on Fees for Services, which replaces the narrower article 12A on Fees for Technical Services and article 14 on Independent Personal Services, and permits source taxation on such payments at a maximum rate to be agreed through bilateral negotiations;
6. introducing article 12C on Insurance Premiums to allow source states to tax insurance premiums on a gross basis. The insurance PE provision formerly contained in article 5(6) is retained as an optional provision in the Commentary to article 5;
7. introducing new provisions to article 25 on Mutual Agreement Procedure (MAP) governing the interaction between tax treaties and other agreements, such as trade or investment agreements, particularly with respect to dispute resolution mechanisms; and
8. removing the phrase "between Developed and Developing Countries" from the title of the Model Convention.

Report from our correspondent Eedee-Bari Nuah Bawoh, Associate, IBFD. Follow our reporting on this via our daily Tax News Service (subscribers only).