The OECD-Model-Convention and its Update 2014

I. S. 2Introduction

This chapter examines the amendments to the Commentary on the OECD Model Tax Convention resulting from the 2014 update with respect to the definition of dividends, interest and capital gains. Concerning the definition of dividends, under article 10(3) of the OECD Model, the new Commentary deals with proceeds from the redemption of shares and comes to the conclusion that they may be taxed as dividends or capital gains, depending on the classification under the national law of the state in which the distributing company is resident. The classification conflicts inevitably arising from this approach are “resolved” by requiring the state of residence of the shareholder to provide relief for double taxation, which literally means a binding of the residence state to the classification of the source state.

In addition, the new Commentary deals with the taxation of bonds under the definition of interest pursuant to article 11(3) of the OECD Model. In this respect, the Commentary indicates what constitutes interest yielded by a loan security. Furthermore, the Commentary also deals with the classification of income that is generated when bonds are sold before maturity, as some ...