BEPS Multilateral Instrument To Enter Into Force
The OECD has announced that its multilateral convention to implement tax treaty-related measures to counter base erosion and profit shifting will enter into force on July 1, 2018.
The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from G20 Finance Ministers and Central Bank Governors, will modify existing bilateral tax treaties to swiftly implement the tax treaty measures developed in the course of the OECD/G20 BEPS Project. Treaty measures that are included in the Convention include those on hybrid mismatch arrangements, treaty abuse, and permanent establishment. The Convention also strengthens provisions to resolve treaty disputes, including through mandatory binding arbitration, which has been taken up by 28 signatories.
The Convention is the first multilateral treaty of its kind, allowing jurisdictions to transpose results from the OECD/G20 BEPS Project into their existing bilateral tax treaties, transforming the way tax treaties are modified. The Convention has been designed to strengthen existing tax treaties concluded among its parties without the need for burdensome and time-consuming bilateral renegotiations, which could take a decade.
“The entry into force of this Multilateral Convention marks a turning point in the implementation of OECD/G20 efforts to adapt international tax rules to the 21st Century,” said OECD Secretary-General Angel Gurria. “We are translating commitments into concrete legal provisions in more than 1,200 tax treaties worldwide. Thanks to this drive by the international community, we are ensuring that multinational companies pay their fair share when it comes to fulfilling tax obligations, like citizens do.”
The entry into force follows from the deposit of the fifth instrument of ratification by Slovenia on March 22, 2018. Earlier, Austria, the Isle of Man, Jersey, and Poland deposited their instruments with the OECD. The entry into force of the Convention on July 1, 2018, will bring it into legal existence in these five jurisdictions, plus the United Arab Emirates, which ratified the deal subsequently, and any other that ratifies the pact. In accordance with the rules of the Convention, its contents will start to have effect for existing tax treaties as from 2019. The OECD described the milestone as “a significant step in international efforts to update the existing network of bilateral tax treaties and reduce opportunities for tax avoidance by multinational enterprises.”