Substance, not style: New OECD Model Convention

As discussed in our prior legal alert, the 2025 Updates included new and revised guidance addressing several significant treaty issues. Among other changes, the 2025 Updates:

• clarified when an employee working across borders from a home or similar location may create a permanent establishment for the employer;
• added an optional provision providing a lower permanent-establishment threshold for activities connected with the exploration and exploitation of extractible natural resources;
• clarified the relationship between Article 9’s arm’s length principle and domestic interest-deductibility limitations;
• added guidance to the Commentary on Article 25 concerning the application of mutual agreement and arbitration procedures in cases involving the OECD’s simplified and streamlined transfer pricing approach under Amount B;
• clarified the circumstances in which exchanged information may be used in tax matters concerning persons other than those in respect of whom the information was initially received and addressed taxpayer access to, and the permitted disclosure of certain non-taxpayer-specific information derived from, exchanged information; and
• added a new provision to Article 25 concerning the relationship between treaty dispute resolution procedures and the General Agreement on Trade in Services.

The new edition does not introduce substantive changes beyond those approved in the 2025 Updates. Instead, it compiles those changes into the complete text of the OECD Model, including its articles, commentaries, country observations and reservations, non-member economy positions, historical notes, and background reports.

The new edition does not make any material modifications to the existing approach to source-country taxing rights, an issue that continues to feature prominently in the United Nations’ work on its own Model Double Taxation Convention (UN Model). The UN Model generally contemplates the preservation of broader taxing rights for source countries than both the OECD Model and US Model Income Tax Convention (US Model). To this end, the current UN Model includes Article 12A, which addresses the allocation of taxing rights over fees for technical services, and Article 12B, which addresses the allocation of taxing rights over income from automated digital services. These differences, along with other proposed changes currently under consideration at the UN, reflect the continuing international debate over how taxing rights should be allocated between source and residence countries. The OECD Model continues to be the basis for most income tax treaties.

The OECD’s publication also highlights the noticeable absence of an updated US Model. The United States released models in 1996, 2006, and 2016. The US Department of the Treasury continues to identify the 2016 convention as the current US Model with no publicly announced replacement or timetable for an update.