In response to the 2011 update of the UN Model Convention which was launched on 15.3.2012, the CBDT has addressed a letter dated 12th March 2012 in which it has registered its objections to the provisions in the UN Model Convention. In particular, the CBDT has stated:
3.2 Even though OECD Transfer Pricing Guidelines do not address the concerns of developing countries, paragraph 3 of the proposed UN Model Convention Commentary of Article 9 indicate that former non-governmental Group of Experts (year 1999) had stated that all the countries including developing countries will follow the OECD principles as set out in the OECD Transfer Pricing Guidelines for the reasons that these guidelines represent internationally agreed principles. The former expert group had also recommended that the Guidelines should be followed for application of the arm’s length principles. However, it has been clarified in the new commentary that views expressed by the former Group of Experts have not yet been considered fully by the Committee of Experts as indicated in the Records of its annual session. India believes that the Committee of Experts do not have jurisdiction to decide the critical issue of whether the OECD Transfer Pricing Guidelines agreed by Governments of developed countries should be followed by the Governments of the developing countries when these Governments are not party to the OECD Transfer Pricing Guidelines. India does not believe that decision of former Group of Experts can be interpreted that subsequent revision of OECD Guidelines (after 1999) will automatically become the internationally agreed standards and United Nations guidance will automatically change without participation and agreement by non-OECD countries. India believes that taking such decision was not within the purview of non-governmental Committee of Experts (1999) and should be revoked immediately.
3.3. …. India believes that OECD Transfer Pricing Guidelines cannot be imported to UN guidance particularly when such recommendations of the group in 1999 is not considered by the present committee and is beyond the scope of non-governmental committee….
4. India further believes that in the revision of UN Model Convention, which is due to be released on 15th March, 2012, concerns of developing countries have not been taken into consideration, as it has been developed by Group of Experts and sub-committees having non-governmental representatives and disproportionate representations from OECD countries. India will submit its detailed comments once the revised UN Model Convention is made public.
5(ii) … It is inconceivable as to how a standard developed by Government of only 34 countries can be accepted by Government of other countries as ‘standard’ of sharing of revenue on international transactions between source and resident country particularly when it only take care of the interest of developed countries and has seriously restricted the taxing powers of source country.