OECD finalizing BEPS multilateral instrument, concerned about EU state aid tax probes

by Julie Martin

Officials are putting the finishing touches on the multilateral instrument (MLI) to implement the OECD/G20 base erosion profit shifting (BEPS) measures, keeping it on track to be finalized this fall, senior OECD officials said September 22.

The officials, speaking during an OECD webinar, also discussed concerns about the EU Commission’s recent state aid decisions involving tax rulings; outlined a new OECD effort to improve tax laws to reduce uncertainty; and highlighted aspects of an OECD paper, released today, that analyzes tax policy in OECD countries.

Multilateral instrument

Jesse Eggert, an OECD senior advisor on the BEPS project, reported that last week the ad hoc group of countries working on the MLI agreed in principle to the core text of the instrument.

The MLI, addressed in action 15 of the BEPS project, is designed to make it easier for countries to implement the tax treaty measures agreed to in the final BEPS plan output, namely, the provisions on hybrid mismatches, tax treaty abuse, avoidance of permanent establishments, and improving tax dispute resolution. Optional rules for mandatory binding arbitration of mutual agreement procedure cases will also be incorporated into the MLI.

Eggert said that the only work that remains to be done is some “fine tuning” of the provisions and to complete the translation of the document into French. He said he expected the English and French versions of the MLI to be formally approved at the final meeting of the ad hoc group, slated for late November. A formal signing ceremony is planned for the first half of 2017, he said.

Eggert said that the MLI’s formal name has been agreed to. It will be called the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting.”

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said the MLI will be made public in November, as soon as it is initialed. Saint-Amans acknowledged that stakeholders have sought to view and and provide input on the document prior to its finalization, but he reiterated that countries believe that the MLI, like other treaties, should remain private until negotiations are complete.

Approach, notifications

Eggert said the MLI adopts a flexible approach, allowing countries to opt-in, opt-out, and select alternative provisions. It does not make sense to require countries to adopt all the BEPS measures because no country would sign such a document, he said. The MLI provides only limited opportunity to opt out of the BEPS minimum standards, though.

Eggert said that the MLI will “sit on top” of bilateral tax treaties, effectively superseding them. He said it became clear that the MLI could not operate like “a big tax treaty protocol,” as it could revise as many as 2500 tax treaties in different languages and with different numbering systems.

He said that for some treaties, the MLI will implement a BEPS measure on a standalone basis. In other cases, where there are existing bilateral tax treaty provisions on a BEPS issue, the MLI uses compatibility clauses to show when the bilateral provisions apply and when they do not.

Eggert said an explanatory statement that will accompany the MLI will address both how the MLI interacts with the existing tax treaty network and how the substantive provisions on arbitration will operate.

Eggert also said that the OECD intends to act as depository for all notifications and signatures relating to the MLI, and in that role, will publicly announce when countries sign the agreement; what provisions they opt-in or out of; the date the MLI enters into force for two particular countries; and once it does enter into force, the entry into effect date.

He said the MLI itself will enter into force after a certain number countries ratify it, and that will, of course, be made public as well.

EU state aid

Saint-Amans said his office has been “very carefully” monitoring the EU Commission’s decisions finding state aid was granted through tax rulings. He said he has stressed to the EU Commission that EU should not create its own transfer pricing standards, but should implement the OECD transfer pricing guidelines.

Saint-Amans said that he believed the Commission has already adopted and expressed this view, and said he believed the EU would take even further steps to clarify this point. Having one transfer pricing standard is necessary to provide certainty to taxpayers, Saint-Amans said. He added that it is not his office’s job to comment on competition matters.

Automatic exchange, beneficial ownership

Saint-Amans also reported that the OECD has concluded a contract to build a system for common transmission of information for automatic exchange of financial account information. He said the project, to “build the pipes through which the information will be exchanged” must be complete by July 1, 2017.

“The new project [will] make sure we turn political success into reality,” he said.

Saint-Amans further reported that he expects G20 finance ministers to work on the issue of beneficial ownership of companies at their next meeting, slated for October 6. “We expect the OECD will be tasked to do work in this area,” he said.

Tax certainty and statistics

David Bradbury, head of the OECD Tax Policy and Statistics Division, said that the OECD will launch a questionnaire by early October asking business representatives to provide views and share experiences about ways that tax laws can contribute to certainty. Bradbury said that the initiave will provide a unique opportunity for business to relate their experiences. The deadline for submissions will be quick; responses will be sought by early December, he said.

Bradbury noted that there has been a recent push by the OECD and G20 to create practical and concrete solutions to enhance tax certainty so that trade, investment, and jobs can be facilitated.

OECD Tax Economist Sarah Perret discussed today’s release of the first edition of a new annual OECD publication, aimed at tracking and comparing tax reform in OECD countries over time. The document covers reforms that were implemented, legislated, or announced in OECD countries in 2015.

Perret said the document concludes that Austria, Belgium, Greece, Japan, the Netherlands, Norway, and Spain implemented the most comprehensive tax reform in 2015.

She also said that the trend of OECD countries lowering their corporate tax rates seems to have picked up in 2015.

The next edition, due mid-2016, will include non-OECD countries, Perret said.