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On November 24th, following months of discussions amongst 100 jurisdictions, the OECD finally approved and released the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), one of the remedies suggested under Action 15 of the BEPS project.

More specifically, this new tool has been designed to “allow participating jurisdictions to swiftly and efficiently adopt supplemental or substitute provisions without having to re-negotiate each bilateral [tax] treaty separately” and is expected to help amend approximately 2,000 bilateral tax treaties throughout the globe.

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

“It will save countries from multiple bilateral negotiations and renegotiations to implement the tax treaty changes in the BEPS Project. 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 added.

As explained by The National Law Review, “the MLI implements the BEPS Action items in treaty language,” while taking note of “the reality that many countries will not agree to all of the provisions.”

Therefore, comments the NLR, “countries are allowed to sign the agreement, but then opt out of specific provisions or make appropriate reservations with respect to specific treaties.”

Prior to implementing the MLI, signatories must ask themselves a series of questions including:

• Will it approve and sign the MLI?
• Which of its treaties will fall under the MLI?
• Will its tax treaty partners accept these stipulations?
• What sections of the treaty will be included or excluded from the MLI? Jurisdictions must keep in mind that if provisions are to be excluded, then they must let the OECD know how this will affect each one of its treaties.
• How will negotiations happen with its partners in terms of MLI’s technical portions?

Answering these questions will allow each jurisdiction to exactly determine which treaties will be amended utilizing the MLI.

OECD’s Multilateral Instrument Welcomed

The International Chamber of Commerce welcomed this move, one the organization believes will bring consistency to the international taxation sector.

Christian Kaeser, Global Head of Tax at Siemens and Chairman of the ICC Commission on Taxation, said about the MLI, “The delivery of the multilateral convention is a reflection of the remarkable effort by the OECD to enable countries to reach a position of consensus and pave the way for consistent implementation of the tax treaty related measures in the BEPS project."

"From the perspective of the business community, international consistency is an important prerequisite to avoid double taxation and ensure the required legal certainty to facilitate international trade and investment. Steps to reach alignment at a global level are therefore always welcome," he added.

After being involved in the negotiations on behalf of the UK, Mike Williams, Director of Business and International Tax at Her Majesty’s Treasury, also lauded these efforts.

“The conclusion of negotiations on the instrument is a major achievement,” while it “also marks a beginning, as important work lies ahead for governments to prepare their own processes for signature, ratification and implementation,” Williams stated.

However, certain problems might emerge related to the MLI’s implementation.

Taxlinked member Jefferson Souza, an Associate with Koury Lopes Advogados in Brazil, says, “In Brazil, treaties must be approved by the Congress to enter in force. Accordingly, any amendment not approved by the Congress that affects the original wording of a DTT (whether in the context of the MLI or not) could potentially be overruled by the Courts based on Constitutional grounds.”

“This means that major changes to each of our 30-plus treaties should be voted in both Houses,” something he believes could take a great amount of time.