Earlier this month, finance ministers for 76 jurisdictions ratified and signed the OECD’s multilateral convention to curtail base erosion and profit shifting (BEPS).
All G20 countries with the exception of the United States, Brazil and Saudi Arabia signed this historic agreement, while Estonia, alongside the US, was the only OECD member who did not follow through with a signature.
As explained by Pat Sweet for CCH Daily, the multilateral instrument, also referred to as MLI, “is designed to offer ways for governments to close the gaps in existing international tax rules by transposing results from the OECD’s BEPS project into bilateral tax treaties worldwide.”
More specifically, Sweet writes, “the multilateral instrument modifies the application of thousands of bilateral tax treaties concluded to eliminate double taxation,” and “implements agreed minimum standards to counter treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.”
Technically speaking, as presented by Martin T Hamilton, Stephen Pevsner and Kathleen R Semanski in the National Law Review, “the OECD has published, for each signatory, a provisional list of the bilateral tax treaties such signatory intends to modify using the Multilateral Instrument, along with the specific MLI provisions to be either adopted or reserved on (including, where applicable, its elections under such provisions), and its notifications with respect to such selections (together, such signatory’s “MLI position”).”
During the signing ceremony, OECD’s Secretary General Angel Gurria addressed the crowd and said, “The BEPS Package catalysed the largest, and fastest, rewriting of the international tax rules in a century.”
Furthermore, Gurria said, the treaty will provide countries with “the tools needed to implement mandatory binding arbitration, tackle hybrid mismatches, and stop artificial avoidance of “permanent establishment” status in your countries,” while at the same time helping “restore citizens’ trust in the fairness and transparency of global governance systems and the legitimacy of the processes underpinning global integration.”
OECD’s MLI to Combat BEPS Welcomed
Practitioners throughout the globe have welcomed the MLI with open arms and remarked on its importance to preventing BEPS.
For instance, Ernst & Young’s global ITS tax policy leader in the UK, Marlies de Ruiter, said, “The multilateral instrument is an important part of BEPS implementation through changes to the around 3000 existing bilateral tax treaties. Traditionally, such bilateral renegotiations of tax treaties would take much more time and be less efficient. This is an innovative mechanism through which countries can change all, or at least a big part, of their existing tax treaties by just signing and ratifying one multilateral instrument.”
The International Chamber of Commerce (ICC) also lauded this OECD effort.
Christian Kaeser, Global Head of Tax at Siemens and Chairman of the ICC Commission on Taxation, said, “The signing of the Multilateral Convention represents an important step towards harmonizing the international tax landscape…Increasing legal certainty is of paramount importance to the business community and we trust that the deal will provide greater certainty for business over the application of international tax rules by standardising compliance requirements and avoiding double taxation.”
Furthermore, ICC Secretary General John Danilovich expressed his satisfaction with the MLI, stating that his organization “applauds the work of the OECD and looks forward to engaging further with policy makers to ensure a robust global tax environment that supports inclusive trade-led growth.”
Concerns Over MLI's Implementation
Gavin Ekins writing for Tax Foundation’s blog, expressed some concerns with regards to the MLI’s implementation, particularly in reference to the agreement’s mandatory binding arbitrations and the fact that countries could opt out from some of its articles.
Ekins writes, “The mandatory binding arbitration is one of the most controversial articles. Of the 68 countries that signed the MLI treaty, only 26 countries opted for the binding arbitration. As such, one of the key provisions of the MLI may not have the critical mass needed to ensure arbitration decisions will be enforced.”
“With so many countries deciding to opt out over many of the MLI’s articles, it is uncertain whether the MLI can deliver the promised benefits of a streamlined tax-treaties process,” he added.
OECD image credited to Gil C / Shutterstock.com