The OECD-Model-Convention and its Update 2014

I. S. 122Introduction

Currently, the OECD Commentary deals with termination payments only in the context of article 18 of the OECD Model Tax Convention (OECD Model). Termination payments are discussed in paragraphs 4, 5 and 6 of the Commentary on Article 18. These paragraphs do not sufficiently address how other provisions, notably article 15, apply to a variety of payments that may be made on the occasion of the termination of an employment relationship in a cross-border situation. Aside from possibly inconsistent characterization of payments received following the termination of employment, different views have been adopted by OECD members as to the source of such payments, which varying interpretations may lead to double taxation or non-taxation.

For this reason, the OECD Committee on Fiscal Affairs has undertaken work aimed at clarifying how such payments should be treated for tax treaty purposes. The results of this work will be incorporated into the 2014 Update to the Commentary.

This chapter analyses the additions and most significant changes to the Commentary with regard to termination payments.

II. Issues in the Classification of Termination Payments

Upon termination of employment, a...