At the 22nd session of the UN Committee of Experts on International Cooperation in Tax Matters, held virtually between 19 and 28 April 2021, a decision was made to revise the commentary to Article 12 (royalties) of the UN Model Tax Treaty in relation to the tax treatment of computer software payments. The position taken by the commentary on the treatment of these payments remains the same; but the proposed Commentary would note that there are differing views on the issue.

Previously there was a proposal to include computer software payments in the definition of royalties in Article 12 of the UN Model. The amendment would aim to clarify that a source jurisdiction could deduct tax at source from software payments. A discussion draft on this issue was released on 16 February 2021 inviting comments by 16 March 2021. Following consideration of the issues at the April 2021 meeting the UN Committee decided not to amend Article 12 in relation to this issue as consensus could not be reached on the change.

The proposed changes to the commentary to Article 12 of the UN Model will note that there are differences of opinion on the issue of the treatment of software payments, but the overall view of the issue taken in the commentary has not been altered.

The new text in the commentary will note that royalties could arise where the rights acquired in relation to copyright are restricted to the rights needed to allow the user to operate a computer program; and that royalties could also arise when a transferee acquires the right to make multiple copies of a computer program for use within its business. The reason for the view that royalties could arise in these situations is that the software user is using the copyright when the software is operated. So, for example, if the copyright is copied without a license there would be a violation of copyright. According to this view commercial exploitation of the copyright is not necessary for the payment to be characterised as a royalty.