3.2.2 Influence OECD MTC and OECD Commentary

The OECD MTC has a major influence on the conclusion, application and interpretation of tax treaties. When OECD members agree on bilateral tax treaties, the OECD MTC is usually the starting point in the treaty negotiations.1 Treaty interpretation and application is streamlined through the global recognition of the OECD MTC, and the fact that it is at the basis of many tax treaties.2 In addition, countries that have drafted their own standard tax treaty often largely follow the structure and articles as set out in the OECD MTC.3 The influence of the Model Tax Convention is not limited to the OECD countries.4 The OECD MTC also plays an important role in treaties agreed by non-OECD members.5

According to the OECD, the accompanying Commentary is of major relevance for the application and interpretation of treaties that include OECD MTC provisions.6 The OECD perceives the Commentary as an important tool for dispute resolution.7 Furthermore, the OECD indicates that tax authorities of OECD member countries use the Commentary to interpret tax treaties.8 What’s more, according to the OECD, the same goes for taxpayers, especially in countries where it is not possible to agree on an advance tax ruling.9 Judges also use the OECD Commentary when adjudicating disputes.10

If the treaty rules are substantially different, a change to one of the articles of the OECD MTC is not relevant for the interpretation and application of tax treaties based on an earlier version of the OECD MTC. According to the OECD, if the OECD Commentary on a specific article changes after the conclusion of a bilateral treaty, while the text of that article remains unchanged, the most recent Commentary should be used for the interpretation of the provision.11 This is the dynamic interpretation method.12 The OECD Commentary is established by consensus of the OECD members. As for new changes for clarification purposes, the OECD argues that it may thus be assumed that the OECD member countries consider these new Commentaries applicable to the concluded tax treaties.13 All things considered, the OECD assumes that the Commentary has a dynamic character, except where it concerns a substantive change to a specific article. Treaty provisions should thus be interpreted and applied as much as possible in the light of the most recent Commentary. It should be noted that not all countries are in favour of a dynamic interpretation.14

OECD countries can make reservations on provisions of the Convention.15 If an OECD country disagrees with the interpretation of a particular provision included in the OECD Commentary, it may make this known by including an observation in the OECD Commentary. The OECD stresses that such an observation does not mean that a country disagrees with the text of the Model Tax Convention, but it merely provides guidance as to how the country will apply the specific provision.16 Furthermore, the positions of non-OECD member countries on treaty provisions and Commentaries have been included in the Commentary to the Model Tax Convention.17