THE OECD Committee on Fiscal Affairs (CFA) has invited public comments on a discussion draft on the tax treaty treatment of various payments that may be made following the termination of an employment. The analysis and suggestions included in this discussion draft address the application of the provisions of the OECD Model Tax Convention when such payments are made in cross-border situations.

The limited guidance currently included in the Commentary of the OECD Model Tax Convention concerning such payments deals exclusively with the extent to which they constitute “pensions or other similar remuneration”. It does not address how other provisions, such as Article 15, apply to a variety of payments, such as non-competition payments, that may be made following the termination of an employment. Since the inconsistent treaty characterisation of payments received following the termination of employment creates risks of double taxation and non-taxation, the OECD Committee on Fiscal Affairs, through a subgroup of its Working Party 1 on Tax Conventions and Related Questions, has undertaken work aimed at clarifying how such payments should be treated for tax treaty purposes.

This public discussion draft includes proposals for additions and changes to the Commentary on the OECD Model Tax Convention resulting from the work of that subgroup. These proposals have recently been presented to the Working Party for discussion with a view to their possible inclusion in the OECD Model Tax Convention. Given the fact that the proposals included in this note relate to a variety of payments that may be made to a large number of individuals, the Working Group concluded that its discussion of these proposals would benefit from the views and experience of interested parties and, in particular, of people and organisations (including advisers and representatives from human resources departments) who regularly deal with the tax situation of employees who exercise employment activities in different countries.