The Newly Introduced "OECD Saving Clause" And It's Impact On Double Taxation

This AI generated podcast is based on a paper written by Professor Leopoldo Parada. Although a “saving clause” has been a feature of U.S. tax treaties for years, the OECD Model Treaty did not have a “saving clause” before 2017. Interestingly, the OECD commentary suggests that the purpose of the “saving clause” was to allow for the taxation of controlled foreign corporations. The U.S. treaties exploit their version of he “saving clause” as a mechanism to employ U.S. citizenship taxation. The abstract of Dr. Parada’s paper includes:

“The 'OECD Saving Clause': An American-Tailored Provision Made to Measure the World

Rivista di Diritto Finanziario e Scienza delle Finanze, LXXVIII 1, I, 13-52 (2019)

41 Pages Posted: 18 Jul 2019

Leopoldo Parada

King's College London

Date Written: July 1, 2019

Abstract

This article argues that the “saving clause” provision introduced in the 2017 OECD Model conflicts with the entitlement to double taxation relief under Article 23 OECD Model, especially in cases involving the use of hybrid entities. Although this issue is pragmatically solved in the new paragraph 11.1 of the commentaries on Articles 23A and 23B OECD Model, which provides no obligation for the Contracting States to relieve double taxation to the extent that taxation is based exclusively on the residence of the taxpayer, it leaves the taxpayer in the residence state with a potential permanent double taxation status. The foregoing may be however avoided with an optional “reverse saving clause”. Such an option seems to be not only more coherent with the traditional object and purpose of tax treaties (double taxation relief), but it also reflects the tax treaty practice already in force in some countries around the world.”

The AI generated description of the paper (upon which the podcast is based) includes:

“The OECD Saving Clause: An American-Tailored Provision

1 source

This text provides an in-depth analysis of the "saving clause" in the 2017 OECD Model Tax Convention, comparing it to the United States' version. The author argues that the OECD's saving clause conflicts with double taxation relief, especially when dealing with hybrid entities. While the OECD commentaries offer a pragmatic solution, it can lead to permanent double taxation for taxpayers. The article proposes an optional "reverse saving clause" as a more coherent and equitable solution, aligning with the traditional purpose of tax treaties: avoiding double taxation.”