New U.S. Model Income Tax Treaty Focused on Evasion

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Feb. 17 — The Treasury Department released its long-awaited 2016 model income tax treaty, with provisions intended to curb the shifting of businesses and income around the globe to avoid taxes.

One provision would deny reduced withholding taxes on payments of highly mobile income, such as royalties and interest, made to related persons who pay little or no tax on that income under a preferential tax regime, Treasury said in releasing the model convention and a preamble Feb. 17.

Another would deny reduced withholding taxes on U.S. source payments made to related foreign persons by companies that invert.

The model treaty also provides for mandatory binding arbitration to settle tax disputes, already in four current U.S. tax pacts and three treaties awaiting Senate ratification.

Treaty Discussions

In a fourth change, Treasury said, the new U.S. model requires treaty partners to meet for discussions when a treaty partner changes its domestic law in a way that draws into question the original balance of negotiated benefits and the need for the treaty to reduce double taxation. Those discussions should address the possible need to amend the treaty, the agency said.

Deputy Assistant Secretary for International Affairs Robert Stack said the model represents “a concerted effort” to further Treasury's policy that treaties should eliminate double taxation without creating opportunities for tax avoidance or evasion.

Treasury said the document reflects comments on the proposed changes that it released in May for public scrutiny. Those comments were “carefully considered,” it said (98 DTR G-6, 5/21/15).

The government plans to release a detailed technical explanation of the model in spring 2016, Treasury said.

To contact the reporter on this story: Alison Bennett in Washington at
To contact the editor responsible for this story: Cheryl Saenz at