BEPS multilateral tax treaty signatories provide interpretation guidelines

Issues relating to the interpretation and implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) should be resolved under several guiding principles, according to an opinion approved by a “Conference of the Parties of the MLI” and released by the OECD on May 5.

A Conference of the Parties, described in article 31 of the MLI, is a group convened by the parties to the MLI, i.e., the jurisdictions for which the agreement is in force, to address issues of interpretation or consider possible amendments.

To date, 65 jurisdictions have ratified, and 95 have signed the MLI to amend existing bilateral treaties to implement changes agreed to by nations as a result of the OECD’s base erosion and profit shifting (BEPS) project.

The opinion states that the jurisdictions that negotiated and adopted the MLI, i.e., “the parties,” should be the ones to interpret it. The MLI provides two mechanisms for the parties to do so, depending on whether the issue relates to the application of the MLI to a particular bilateral tax treaty or is an issue with the interpretation of the MLI itself.

For issues relating to how the MLI modifies a particular covered tax agreement, the resolution should be worked out between the two parties to that bilateral agreement through a mutual agreement procedure. Recurrent questions about the implementation of the MLI itself may be addressed by convening a Conference of the Parties.

The opinion incorporates some general treaty interpretation principles. That is, the MLI should be interpreted in light of its object and purpose (i.e., implementing tax-treaty related BEPS measures) and in light of its context (i.e., incorporating the explanatory note to the MLI).

In addition, the later-in-time rule applies, such that the MLI controls in a conflict between it and an earlier covered agreement.

Jurisdictions should also respect the boundaries of a party’s consent to the MLI as expressed in their MLI positions, the opinion states. The MLI does not modify a covered tax agreement beyond the boundaries set by either of the parties to the agreement.