The OECD on May 31 issued a request for the public to assist with technical questions associated with the development of a multilateral instrument to be used by countries that wish to implement tax measures in the OECD/G20 base erosion profit shifting (BEPS) plan.
The multilateral instrument is designed to streamline the process of incorporating the BEPS action plan recommendations into the 3,000 existing bilateral tax treaties, dispensing with the need for countries to renegotiate tax treaties separately. BEPS project work on hybrid mismatches, tax treaties, permanent establishment, and dispute resolution will be added to tax treaties through the instrument.
The instrument will also include a provision allowing for mandatory binding arbitration for those countries that wish to adopt it.
The OECD said that 96 countries are participating in the development of the instrument, with international organizations participating as observers. The group aims to conclude its work and open the multilateral instrument for signature by December 31.
The OECD is seeking help on technical issues, such as how to integrate the instrument’s provisions into exiting tax treaties, including treaties that differ from model tax treaties, through use of techniques such as a ‘compatibility clause.’ The OECD noted that, in some cases, treaties have provisions that are similar to BEPS provisions that will need to be replaced, but in other cases, existing provisions similar to BEPS provisions will need to be retained.
Another issue is how to incorporate BEPS plan agreed-to commentary into existing treaties to ensure consistent application and interpretation.
Also, while the instrument is being negotiated in English and French, questions arises as to how to ensure consistent application when the treaty being amended is in another language, the OECD said.
The OECD said that the multilateral instrument will need to cover countries that have already committed to implementing binding arbitration as well as those considering arbitration in the future. Input is requested on technical issues associated with that.
Further, the OECD seeks input on the types of practical guidance and tools that should be developed for taxpayers to help them understand the application of the multilateral instrument to existing treaties.
Comments should be submitted by June 30.
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