Taxand welcomes the opportunity to submit comments on the public discussion draft dated 9 December 2009 on the granting of treaty benefits with respect to the income of collective investment vehicles (“CIV”s).

Taxand supports the initiative undertaken by the OECD in this area and agrees that the commentaries to the OECD Model Tax Convention have to evolve to be in line with market practice i.e.  investors are investing increasingly via CIV rather than directly due to practical/economic considerations rather than tax reasons.

CIVs in most cases benefit from a formal or de facto exemption regime in the country in which they are established, with taxation taking place at investor level. As a consequence, treaty benefits are often not granted and, as a result, investing via this type of vehicle will be more onerous for an investor rather than investing directly. 

Given this situation, it is crucial that the position of CIVs towards treaty entitlement be clarified as soon and extensively as possible.

Taxand's Take
With respect to future treaties, the Report says that the Commentary on Article 1 of the Model Tax Convention should be expanded in order to include a number of optional provisions for countries to consider in their future treaty negotiations. We think that it would make sense to reduce the number of options as far as possible, bearing in mind the complexity for CIVs with investors in many different countries.

We recommend the favoured approach for such a provision -  i.e. to treat a CIV as a resident of a Contracting State and as the beneficial owner of its income -  because, despite potential difficulties due to the legal characteristics of CIVs (some are not even a person for legal purposes), open-ended funds, can in practice be compared to publically listed companies, which almost invariably benefit from tax treaties, regardless of the residence of their investors.

Read Taxand's full response to the discussion on “The Granting of Treaty Benefits With Respect to the Income of CIVs" on the OECD website.

Your Taxand contact for further queries is:
Peter Kleingarn
T.+352 26 940 530 
E.  Peter.Kleingarn@atoz.lu