Publication Title

Tax Notes International


G20/OECD inclusive framework, base erosion, profit shifting, subject-to-tax rule, tax treaties

Document Type



In this article, we analyze and compare two proposals for a new subject-to-tax rule (STTR) provision to be included in tax treaties, one from the U.N. Tax Committee and the other from the G20/OECD inclusive framework on base erosion and profit shifting. The U.N. proposal is broad, and would clarify that restrictions in tax treaties on taxation of income at the source where it is derived are conditional on that income being taxed at an agreed-upon minimum rate in the country where it is received. The inclusive framework version is much more limited, being confined to payments between connected entities and specific categories of income; it is also subject to markup and materiality thresholds, as well as a capped total tax rate (taking account of the tax in both the source and recipient countries) of 9 percent. These restrictions and conditions not only make the inclusive framework version complex and hard for under-resourced tax administrations to administer, but they also create a considerable scope for differing interpretations. However, the inclusive framework version is complete and ready for implementation (on a take-it-or-leave-it basis) while the U.N.’s will require negotiation over the applicable rate and other details, but provides more comprehensive protection for source taxation. In our view, all countries would benefit from and should strongly support the U.N.’s STTR, which should be regarded as a minimum standard, especially once it is included in the Fast Track Instrument also being developed by the U.N. Tax Committee.



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