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Public discussion draft

Paragraph 4 of the Commentary on Article 18 indicates that “various payments may be made to an employee following cessation of employment. Whether or not such payments fall under the Article will be determined by the nature of the payments, having regard to the facts and circumstances in which they are made, as explained in the following two paragraphs”. Paragraphs 5 and 6 of the same Commentary discuss the extent to which such payments constitute “pensions or other similar remuneration”.

These paragraphs, however, do not address how other provisions, such as Article 15, apply to a variety of payments, such as non-competition payments, that may be made following the termination of an employment. Since the inconsistent treaty characterisation of payments received following the termination of employment creates risks of double taxation and non-taxation, the OECD Committee on Fiscal Affairs, through a subgroup of its Working Party 1 on Tax Conventions and Related Questions, has undertaken work aimed at clarifying how such payments should be treated for tax treaty purposes.

This public discussion draft includes proposals for additions and changes to the Commentary on the OECD Model Tax Convention resulting from the work of that subgroup. These proposals have recently been presented to the Working Party for discussion with a view to their possible inclusion in the OECD Model Tax Convention. Given the fact that the proposals included in this note relate to a variety of payments that may be made to a large number of individuals, the Working Group concluded that its discussion of these proposals would benefit from the views and experience of interested parties and, in particular, of people and organisations (including advisers and representatives from human resources departments) who regularly deal with the tax situation of employees who exercise employment activities in different countries.

The Committee therefore invites interested parties to send their comments on this discussion draft before 13 September 2013. These comments will be examined at the September 2013 meeting of the Working Party.

Comments on this discussion draft should be sent electronically (in Word format) by email to  taxtreaties@oecd.org and should be addressed to:

Tax Treaties, Transfer Pricing and Financial Transactions Division


Unless otherwise requested at the time of submission, comments submitted in response to this invitation will be posted on the OECD website.

This document is a discussion draft released for the purpose of inviting comments from interested parties. It does not necessarily reflect the final views of the OECD and its member countries.

Download –  OECD MODEL TAX CONVENTION: Tax Treaty Treatment of Termination Payments – Discussion Draft


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July 2024