The OECD on July 4 released 33 comment letters received in response to its discussion draft on the development of a multilateral instrument to implement the tax treaty provisions in the final OECD/G20 base erosion profit shifting (BEPS) plan reports. All the comment letters released were written by business representatives, except for one, submitted by the BEPS Monitoring Group.
The multilateral instrument would streamline the process of incorporating BEPS action plan recommendations into some 3,000 existing bilateral tax treaties to dispense with the need for countries to renegotiate tax treaties separately.
In its May 31 discussion draft, the OECD asked for stakeholder 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 did not include draft text of the multilateral instrument in its request for comments. At a June tax conference Jesse Eggert, an OECD senior advisor on the BEPS project, said that multilateral instrument would not likely be released to the public in draft form before it is finalized because, like other tax treaties, it will be the product of negotiation among countries.
In their comment letters, several business representative argued that the OECD should revisit this decision. Mary C. Bennett on behalf of the International Alliance for Principled Taxation was among commentators that said that it is extremely difficult for stakeholders to assist the OECD with the technical work of drafting the instrument without seeing a draft.
William J. Sample of the USCIB said drafting the instrument properly is key to the success of the BEPS project. “If the provisions do not work as expected that will be a major set-back for the BEPS project, delaying or even preventing consistent implementation of the BEPS outcomes, which might take years to fix,” he said
Will Morris of BIAC also said public consultation on a draft is needed. This is a “one-of-a-kind instrument,” Morris said, which needs buy-in from governments as well as members of the wider tax community, including business, and civil society organizations.
Business commentators expressed strong support for addition in the multilateral instrument of provisions enhancing the mutual agreement procedure (MAP) and introducing mandatory binding arbitration for those countries choosing to adopt it.
“The MAP provision is of key importance not just to the success of the [multilateral instrument], but to the entire BEPS project,” Morris said.
Morris argued that the multilateral instrument should not permit countries to reserve on any of the BEPS minimum standards, which include a commitment to resolve MAP cases within an average of 24 months, to fund MAP administration, and to ensure that qualified taxpayers have access to MAP.
“If individual countries are not willing to sign up to at least the provisions on the minimum standards and associated OECD commentary, they should not be able to use any part of the [multilateral instrument] and must renegotiate their treaties bilaterally to address BEPS concerns,” Morris contended.
The International Chamber of Commerce (ICC) argued the multilateral instrument should add provisions on arbitration that go further than current proposals. Taxpayers should be given the ability to refer a dispute to mandatory binding arbitration if they are dissatisfied with an agreement reached between two counties in a tax dispute, the ICC said. The ICC also said that countries should be sanctioned, possibly even monetarily, if they fail to resolve cases through mandatory binding arbitration or MAP.
In contrast, Sol Picciotto of the BEPS Monitoring Group, argued that the multilateral instrument should not include any of the provisions agreed to in the final report under action 14 of the BEPS plan, particularly the provisions strengthening MAP and introducing a mandatory binding arbitration scheme.
Picciotto, whose group is comprised of tax experts that campaign for tax justice, said that cross-border tax disputes, which often involve hundreds millions of dollars, should be resolved in court like all other tax claims, rather than in MAP, which he characterized as “an administrative process held behind closed doors.”
Picciotto said the 20 OECD countries that have thus far committed to adopt mandatory binding arbitration have made a mistake. Multinationals will have an incentive to engage in tax avoidance in these jurisdictions, he said, because they know their tax disputes must be resolved quickly in MAP.
He also said developing countries should not sign up for arbitration because it will likely permit exploitation of the imbalance between the capacity of OECD countries’ tax authorities and developing countries’ tax authorities.
The following organizations commented on the draft:
ABI-Italian Banking Association; AFME–Association of Financial Markets in Europe; AIMA-Alternative Investment Management Association; ALFI-Association of the Luxembourg Fund Industry; Federation of German Industries; BEPS Monitoring Group; BusinessEurope; CBI; CIOT-Chartered Institute of Taxation; CII-Confederation of Indian Industry; Confederation of Swedish Enterprise; Duff & Phelps (Andrew Cousins, Richard Newby); FBF-Fédération Bancaire Française; Grant Thornton UK; IAPT-International Alliance for Principled Taxation; ICAEW Tax Faculty; ICC-International Chamber of Commerce; ICC-International Chamber of Commerce, United Kingdom; ICI Global; ITG–International Tax Group; ITI-Irish Tax Institute; JFTC-Japan Foreign Trade Council; MEDEF-Mouvement des Entreprises de France; NOB-Nederlandse Orde van Belastingadviseurs; NFTC-National Foreign Trade Council; PWC; RSM; Studio Biscozzi Nobili; Software Coalition; Tribute Foundation; TEI-Tax Executives Institute; USCIB-United States Council for International Business.
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