[World Tax News] OECD 2025 Update to Model Tax Convention and More

Editorial Team – [2025] 180 taxmann.com 813 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. OECD Releases “2025 Update to Model Tax Convention”

The Organisation for Economic Co-operation and Development (OECD) has released the ‘2025 Update to the OECD Model Tax Convention’. This update was approved by the Committee on Fiscal Affairs on 13 October 2025 and by the OECD Council on 18 November 2025.

The following are the key changes to the OECD Model Tax Convention included in the 2025 Update:

(a) Dispute Resolution (Article 25)

OECD amends Article 25 and its Commentary to clarify the relationship between the Model Convention and the General Agreement on Trade in Services (GATS). A new paragraph 6 is added, which clarifies that, for purposes of GATS Article XXII(3), a measure will fall within a tax treaty’s scope only if Article 24 applies to it.

Any dispute between treaty partners over whether a measure falls within the scope of the treaty must be resolved under the Mutual Agreement Procedure (MAP) under Article 25(3) or by such other procedure mutually agreed. This amendment prevents overlapping or contradictory dispute-settlement routes between the tax treaty and WTO’s GATS, thereby reinforcing the primacy of MAP for tax-related jurisdictional disputes.

(b) An individual’s home could constitute a “place of business”

Recognising rising remote-work models, Commentary to Article 5 (Permanent Establishment) is amended to clarify the circumstances in which an individual’s home could constitute a “place of business” of the enterprise for which the individual works. The OECD notes that these clarifications are an evolution of established principles but have been refined to provide modern certainty.

(c) Optional alternative PE rule for extractible natural resources

The Commentary to Article 5 now includes an optional alternative provision addressing activities relating to exploration and exploitation of natural resources. This provision introduces a lower PE threshold that is crossed once a non-resident enterprise operates in a source State for a bilaterally agreed period.

(d) Transfer pricing and interest limitation
The Commentary on Article 9 has been revised to address queries arising from Working Party 6’s review of transfer pricing rules for financial transactions (as detailed in Chapter X of the Transfer Pricing Guidelines). These updates clarify the operation of Article 9, particularly in relation to domestic interest-deductibility rules, including those recommended under the BEPS Action 4 final report. Corresponding amendments have also been made to the Commentaries on Articles 7 and 24.

(e) Update to Article 25 Commentary on Amount B

The Commentary on Article 25 has been modified to incorporate references to the tax-certainty framework and double-taxation relief outlined in the Amount B report. These revisions aim to ensure that all dispute-resolution mechanisms remain optional for jurisdictions that choose not to adopt Amount B.

(f) Exchange of Information (Article 26)

Two major changes are introduced in Article 26 Commentary:

• Information received under exchange-of-information provisions may be used for tax matters relating to persons other than those for whom the information was originally obtained.

Agreed interpretative guidance has been incorporated on taxpayer access to exchanged information and the disclosure of reflective, non-taxpayer-specific information generated from or based on exchanged data.

Source – OECD 2025 Update to Model Tax Convention

2. UAE FTA and China’s STA Sign MoU to Enhance Bilateral Tax Cooperation

The Federal Tax Authority (FTA) has signed a Memorandum of Understanding (MoU) with the State Taxation Administration of the People’s Republic of China (STA) on 20 November 2025 to strengthen cooperation and enhance the exchange of expertise in the field of taxation.

The MoU was formally signed at the FTA headquarters in Dubai by H.E. Khalid Ali Al Bustani, Director-General of the FTA, and H.E. Jinglin Hu, Commissioner of the STA.

The agreement forms part of the ongoing efforts of both authorities to reinforce bilateral relations and promote collaboration on tax administration. It provides for the exchange of technical expertise and best practices, as well as enhanced coordination through joint visits, meetings, knowledge-sharing activities, and the exchange of information on emerging tax policies and procedures.

FTA representatives noted that the MoU aligns with the Authority’s broader strategy of expanding international partnerships and establishing robust cooperation frameworks at regional and global levels. The agreement is expected to help build effective mechanisms for collaboration, supporting the FTA’s objectives of fostering a tax environment rooted in compliance, transparency, and sound governance.

The Authority commended the strong cooperation with the STA and emphasised the positive outcomes anticipated from the MoU. The agreement will pave the way for deeper engagement with China on tax matters and support the ongoing development of the UAE’s tax system by adopting international best practices and advanced digital technologies.

The FTA further highlighted that the MoU enhances cooperation in key implementation areas, including digital transformation of tax administration and capacity-building through training initiatives. It also facilitates the organisation of exchange visits between the two tax authorities to broaden administrative and technical collaboration.

Additionally, the agreement supports the FTA’s continuous improvement efforts to elevate the quality of services offered to taxpayers, leveraging technological solutions to enhance efficiency and ease of compliance. The strengthened exchange of expertise is expected to boost overall competitiveness and reinforce the UAE’s global standing, particularly in digital transformation and modern tax administration.

Source – Federal Tax Authority

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