How the UN Model Tax Treaty shapes the UN Tax Convention behind the scenes

In March 2025, the UN Tax Committee finalised its 2025 update of the UN Model Convention, which serves as a template for bilateral tax treaties, particularly those signed by Global South countries. A new report by the Tax Justice Network analyses the many changes made to the UN Model. These changes are not without relevance for the upcoming negotiations on the UN Tax Convention. As explained in this blog, while formally without ties, the work of the Committee appears to be playing its part in shaping the direction of the Convention. The UN Model (2025) update may therefore be an indication of what is yet to come in the Convention negotiations.  

In this new report by the Tax Justice Network, we summarise and provide background on the many changes made in the 2025 update to the UN Model Convention.  

The 2025 update of the UN Model Convention received final approval by the UN Tax Committee during its 30^th Session, held in Geneva in March 2025. The session was the last formal gathering of the Experts of the Committee’s 2021-2025 term. It also marked the final moment of formal approval for the many other policy instruments developed by the Committee over the last four years.  

As noted in a previous blog on this topic by Sol Picciotto, it is with remarkable energy that the outgoing membership of the UN Tax Committee delivered outputs covering a wide range of issues, including wealth and solidarity taxes (with  guidance on the taxation of wealth and a UN wealth tax sample law), environmental taxation, indirect taxes, health taxes, and refinement of transfer pricing guidance.  

Most eye-catching are of course the UN Tax Committee’s changes to its flagship publication, the UN Model Convention.  

Bilateral tax treaties can support domestic resource mobilisation as long as they implement a fair and equitable allocation of taxing rights. If not, tax treaties can quickly turn into liabilities for lower-income countries, carrying substantial unforeseen costs and freezing their policy space, especially in relation to locally active foreign companies. The UN Model Convention serves as the most important benchmark in this regard, and as a counterpoint to the model developed by the OECD. Whereas the OECD Model is skewed towards the interests of countries that are exporters of capital, technology and services, the UN Model strives to further the interests of countries that are importers.  

With each update of the UN Model, the UN Tax Committee continues its work on the strengthening of source state taxation rights under the model and tax treaties. This new report by the Tax Justice Network comments on the important changes made in the 2025 update of the UN Model Convention.  

New features of the UN Model (2025) 

The report provides a summary and background of the many changes made by the UN Tax Committee to the UN Model (2025). These changes range from alteration of the distributive rules for all types of cross-border services to a subject-to-tax rule and an important priority rule on the interplay between dispute resolution mechanisms in tax treaties and international investment agreements. 

• Extractive industries: new Article 5A of the UN Model contains a provision on income from the exploration for, or exploitation of, natural resources. If such activities are carried out in the source country for at least 30 days, they give rise to a deemed permanent establishment (PE), and the profits attributable to that PE can be taxed in the source country.   

• International shipping: new Article 8 (Alternative A) includes rules on taxation at source of cross-border maritime and air transport. The old Alternative A of Article 8, which replicated the OECD Model’s rule of exclusive residence taxation, has been downgraded to Alternative B in the UN Model (2025).  

• Payments for the use of software: in the UN Model (2025), the definition of royalties in Article 12 has been expanded to include payments for software, including payments that do not relate to the use of copyright in the software.  

• Fees for services: new Article 12AA on services replaces Article 12A (technical services) and Article 14 (independent personal services). It applies to payments for any service and allows the source country to subject the payment to a gross withholding tax if the payments arise in the country.   

• Insurance premiums: new Article 12C subjects insurance premiums arising in a source country and paid to a resident of another country to a withholding tax on the gross amount of the premiums if the payer is a resident of the country.  

• Subject to tax rule (STTR): under the new STTR in Article 1 of the UN Model, a source state is not required to limit the tax it levies on income arising in its jurisdiction under the tax treaty if the residence state subjects that same income to a low level of taxation.  

• Dispute resolution: new extended provision in Article 25 provides that taxation measures  in line with the tax treaty are considered not to breach any other treaty (such as bilateral investment agreements), and that disputes regarding taxation measures shall not be settled using dispute resolution mechanisms in such treaties, unless both tax treaty countries agree otherwise. 

Achieving more with less

Today, the UN Tax Committee is the only body of the UN that is fully dedicated to the development of cross-border tax policy instruments geared towards the interests and realities of countries in the Global South.  

As a non-governmental entity that is notoriously underfunded, the Committee’s outputs are essentially crowdsourced and rely on the time and goodwill of the Experts and observers who contribute to the technical work of the Committee’s subcommittees. As the Co-Chair of the Committee phrased it in her closing remarks at the 30^th session: “thank you to your employers”–national governments, academia or civil society organisations. 

The G77 has long insisted to change this sorry state of affairs. A concerted effort by the G77 in 2015 at the Third International Conference on  Financing For Development Conference to upgrade the UN Tax Committee to a properly funded intergovernmental body to provide an inclusive forum to discuss global tax norms was blocked by countries including the UK and the US. These countries argued, among other reasons, that global tax discussions were already taking place under the OECD.  

Subsequent years of largely unsuccessful and not globally inclusive tax discussions at the OECD further fuelled Global South countries’ realisation of the need for  a more inclusive system of global tax governance. It is this failure to upgrade the UN Tax Committee, combined with a call by the African Group in 2019  and the African Union and Economic Commission for Africa in 2021 for the development of a UN tax convention to combat illicit financial flows and aimed at eliminating base erosion, profit shifting, tax evasion and other tax abuses, that has culminated in the currently ongoing negotiations of a UN Framework Convention on International Tax Cooperation (UNFCITC). 

Committee’s relation status with the Convention: it’s complicated 

The question then arises: what is the UN Tax Committee’s relationship and position regarding the UN Framework Convention on International Tax Cooperation?   

In short: there is no position or relationship. The UN Tax Committee has not expressed any points of view on the Convention and its negotiations. There is also no formal relationship between the work of the UN Tax Committee and the Convention. The Committee is a non-political and non-intergovernmental body tasked with the development of non-binding tax policy instruments geared towards the interests of Global South countries. The Convention is largely driven by the same goals but will be the result of an intergovernmental process of technical and political negotiations. If signed and ratified by countries, the Convention will create a binding international framework for tax governance at the United Nations. It remains to be seen what the position of the UN Tax Committee will be. As negotiations begin, the clearest proposal is for the tax committee to be adopted as a subsidiary body under the Convention’s new governance structure. 

In the meantime, many of the Experts of the 2021-2025 term of the Committee have assumed roles in country delegations participating in the Convention negotiations. A few of them (including the Co-Chairs of the Committee) have assumed positions of co-leads in the Convention negotiation workstreams. The Convention process and the UN Tax Committee also rely on the same secretariat staff at the UN Department of Economic and Social Affairs.  

Given the history and the people involved in key positions, it was to be expected that some of the discussions held at the UN Tax Committee would feed into the Convention negotiations, and that the Convention may be more aligned with the Committee’s work than some might expect. 

The release of the Draft Issues Notes for each of the three negotiation workstreams seems to confirm this expectation. 

We have (draft) issues 

Heavily anticipated by non-country stakeholders, the release of the Draft Issues Notes on 27 June 2025 provides a first glimpse of the direction the upcoming negotiations will take on the three workstreams. These workstreams are: Workstream I on the framework convention; Workstream II on the taxation of services; and Workstream III on dispute prevention and resolution. 

As noted by the workstream co-leads during the multi-stakeholder briefings, the Draft Issues Notes reflect what countries have been debating in frequent virtual meetings – some reportedly attended by over one hundred countries – in the three workstreams of the Intergovernmental Negotiating Committee of the Convention.  

The Draft Issues Notes do not necessarily reveal much about the actual rules or policy decisions that will eventually have to be made in the Convention, but they do provide valuable insight into the issues and solutions on country delegates’ minds. 

Many of these issues and solutions are remarkably close to the discussions held at the UN Tax Committee in recent years. In the Note on Workstream II on the taxation of services, the co-Leads emphasize the possibility of keeping the services protocol broad in scope, rejecting the Secretariat’s implicit suggestion that it should apply only to digital services. The Note then continues by explaining the unsatisfactory solution for the taxation of cross-border services in the OECD Model and the effort by the UN Tax Committee to develop alternative rules in the UN Model Convention, including references to some of the new rules such as Article 12AA, Article 12C, and new Article 8 (Alternative A), which have been added to the UN Model in 2025 and  are  discussed in the Tax Justice Network’s new report on the UN Model (2025). 

It is also noted in the Draft Issues Note that the focus in the workstream has largely been on the provisions of bilateral tax treaties and how they restrict or eliminate source taxation. It is therefore not implausible that the protocol may eventually become a multilateral implementation of the UN Model’s own allocation rules on services.  

After all, with this recent update, the UN Tax Committee has completed its mission to provide a solution for source taxation rules for fees for all types of cross-border services, whether these are automated digital services (in Article 12B, added to the UN Model in 2021),  international air and maritime shipping services (in Article 8), or any other high and low value services in between (in Article 12AA). The solution proposed under the UN Model is, however, the taxation of services on gross basis by means of withholding taxes levied by the source state on fees for services paid by local payers to non-resident service providers. The gross taxation approach may not be ideal, but it is certainly a feasible solution, and one which is already embraced by many countries in the Global South and therefore should be reckoned with in the protocol negotiations 

Similarly, in the Note on Workstream III on dispute prevention and resolution, the co-leads reiterate a prior note by the Secretariat which, among other things, mentions the use of mandatory binding arbitration under international investment agreements to address tax-related disputes and the fact that countries have questioned the inclusiveness, effectiveness, and fairness of this approach.  This led the Secretariat to conclude that a more multilateral approach to this issue could help stabilise and bring greater certainty and fairness to the international tax environment.  

Interestingly, this too can be seen as a clear hint by the Secretariat and the Workstream Leads for the Convention to continue the work done by the UN Tax Committee on this matter. As discussed in our new report, the new extended provision in Article 25 of the UN Model (2025) has been the Committee’s groundwork to reshape the skewed relationship between tax dispute settlement under investment treaties and tax treaties. 

In any event, the outgoing UN Tax Committee has contributed powerfully to the international landscape. Whether its legacy is to shape fundamentally the UN Convention remains to be seen.