The 2011 update to the UN Model Double Taxation Convention, launched after a meeting of the UN Committee of Experts on International Cooperation in Tax Matters on 15 March 2011, once more poses the question what the relationship is between the established OECD tax treaty model, the UN tax treaty model and some countries’ specific viewpoints with respect to these models.

The OECD Model tax treaty, an influential tax treaty model on which more than 1000 bilateral tax treaties are based, is regarded to be geared towards the interests of developed countries. Developing countries, especially the upcoming economies such as India and China, neither have nor had influence on the development of the OECD Model. The UN Model, on the other hand, can, ‘thanks to its universal membership and its legitimacy, be a catalyst for increased international cooperation in tax matters for the benefit of developed and developing countries alike’, as the Secretary-General wrote.

The UN tax treaty model, however, relies on OECD material with respect to some of the issues of double taxation it deals with. For example, with respect to the problem of transfer pricing, one of the more prominent problems of international double taxation, the Committee of Experts recommends that the OECD guidelines should be followed.

In a recent letter to the UN Financing for Development Office of the UN ECOSOC, India has expressed its doubts with respect to this practice. According to India, the Committee of Expert’s recommendation that the OECD guidelines should be followed, ‘should be ignored’. India holds that these guidelines have been developed on the basis of consensus reached by the 34 OECD states (all developed states), and not on the basis of a broader consensus that also includes non-OECD member states such as India itself.

This puts in doubt the way existing treaties between OECD countries and upcoming economies such as India have to be applied. Other internationally accepted standards are not yet available and will have to be created first. If India, clearly an important (future) trading partner to many OECD countries, questions the application of some of the basic principles set out by the OECD and relied upon by the UN, this might lead to legal insecurity with respect to tax issues relating to reciprocal trade and investor relationships. Moreover, it puts into doubt whether future OECD state treaty negotiators will be able to easily rely on these OECD principles when trying to form new tax treaty arrangements.