UN: 2025 update to UN Model Tax Convention
Updates relating to subject-to-tax mechanism, natural resource activities, insurance premiums, fees for services, and definition of royalties
September 11, 2026
The UN Tax Committee on August 28, 2026, published the text of the 2025 UN Model Tax Convention (MTC), which includes the following amendments:
- A new subject-to-tax mechanism was added in order to prevent situations in which cross-border payments escape effective taxation or are taxed at an inappropriately low level. The new paragraph 3 of Article 1 makes treaty-based restrictions on source taxation conditional upon the taxation of the relevant income in the residence jurisdiction at a minimum level to be determined by the contracting states.
- The revised UN MTC introduces Article 5A, which specifically addresses activities connected with natural resources. In essence, when a foreign enterprise carries out exploration or exploitation activities in the other state, it will generally be regarded as having a permanent establishment (PE) in that other state, unless the duration of those activities remains below an aggregate threshold of 30 days within the relevant twelve-month period.
- The update introduces a new provision on insurance premiums (Article 12C), which allows the source jurisdiction to impose tax on such premiums on a gross basis. The former insurance PE rule from Article 5(6) is no longer included in the main body of the MTC and remains only as an optional solution as discussed in the commentary.
- The revision also introduces a new provision on fees for services (Article 12AA), replacing the narrower Article 12A on fees for technical services and Article 14 on independent personal services. The new article gives the source state the right to tax such income, subject to a ceiling that is to be agreed through bilateral treaties.
- The revised MTC provides for an expanded meaning of the term “royalties” (Article 12), which now includes payments for software, irrespective of whether those payments are treated as consideration for the use of copyright.
Other updates concern the treatment of international transport in the source state (Article 8) and dispute resolution mechanisms (Article 25).
Read a September 2026 report prepared by KPMG’s EU Tax Centre