Over 100 countries adopt multilateral convention to close tax treaty loopholes, improve international tax system

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by Davide Anghileri

On 24 November more than 100 jurisdictions concluded negotiations on a multilateral instrument to swiftly implement a series of tax treaty measures to update the international tax rules and diminish the opportunity for tax avoidance by multinational enterprises.

The aim of this new instrument is to transpose results from the OECD/G20 base erosion and profit shifting project (BEPS) into more than 2,000 tax treaties worldwide.

“The adoption of this multilateral instrument marks a turning point in tax treaty history,” said OECD Secretary-General Angel Gurría during the adoption ceremony.

Gurría said the multilateral instrument will save countries from multiple bilateral negotiations and renegotiations to implement the BEPS project tax treaty changes.

“More importantly, having more than 100 jurisdictions on board will help ensure consistency in the implementation of the BEPS project, which will result in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens,” Gurría said.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS will implement minimum standards to counter treaty abuse and to improve dispute resolution mechanisms.

The new instrument will provide flexibility to accommodate countries’ specific tax treaty policies. It provides flexibility regarding ways to meet the BEPS minimum standards on tax treaty abuse and dispute resolution, allows countries to opt out of provisions that are not BEPS minimum standards, and provides optional provisions and alternative provisions where there are multiple ways to address BEPS.

The Multilateral Convention will provide clarity and transparency due to carefully drafted compatibility clauses; an Explanatory Statement and other planned guidance; a mechanism for notification of affected tax treaty provisions; and online publication of covered treaties, reservations, and options.

Hence, the outcome of the Multilateral Convention will be to strengthen tax treaties of the countries involved with measures developed in the OECD/G20 BEPS project.

The multilateral convention was developed over the past year via negotiations involving 99 countries, including OECD member countries, G20 countries, and other developed and developing countries, together with four jurisdictions and seven international organisations as observers.

The instrument applies to existing tax treaties. Countries can specify the tax treaties to which the instrument applies and must prepare a list of treaties to be covered by the instrument. Countries must also consider which options to select and reservations to make.

Convention signing is planned for June 2017; it will enter into force after five countries have ratified it. A convention enters into effect for a specific tax treaty after all parties to that treaty have ratified the instrument and a certain period has passed to ensure clarity and legal certainty.

The OECD will be the depository of the multilateral instrument and will support governments in the process of its signature, ratification, and implementation.

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Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at danghileri@yahoo.it.

Davide Anghileri