A discussion document on the treatment of termination payments in tax treaties was issued by the OECD on 25 June 2013. The document discusses various categories of payment made to employees on or after the termination of their employment and contains proposed commentary on the treatment of such payments for tax treaty purposes. Comments on the issues raised are invited by 13 September 2013.

The commentary to Article 18 of the OECD Model Tax Convention looks at the payments made by an employer to an employee following the cessation of employment and the extent to which these payments may be classified as pensions and similar remuneration. However other types of payment, such as non-competition payments, are made to employees and there is no guidance as to the extent to which these other payments are affected by articles of the Model Convention. For example, non-competition payments could fall within the scope of the Article on income from employment (Article 15) but there is no guidance on this possibility. As with any situation where there is a lack of clarity, the result could be double taxation or double non-taxation.

The document also looks at payments for unused holiday and sick leave; payments in lieu of notice of termination; severance payments; damages for unlawful dismissal; payments in relation to pension rights; deferred remuneration; payments under an incentive compensation arrangement; fringe benefits for the period after employment; compensation for loss of earnings on or after termination following injury or disability; compensation for loss of future commissions and partial retirement payments. The proposed amendments to the commentary to the Model Convention are set out in an Annex to the document.