International tax reform moved ahead as the Organisation for Economic Cooperation and Development (OECD) published its so-called multilateral instrument (MLI), along with an explanation of how it will work.
The MLI, a cornerstone of the OECD’s base erosion and profit shifting (BEPS) project, is formally known as the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. It is expected to update more than 2,000 worldwide tax treaties and modify them to include specific BEPS provisions, such as the minimum standards to counter treaty abuse and improve dispute resolution mechanisms.
It will modify a treaty’s application, in order to implement BEPS measures, as opposed to an amending protocol, which would directly amend the text of the treaty. Jurisdictions may agree subsequently to different modifications to their treaties.
Here are some details about the MLI:
A provision on fiscally transparent entities isn’t required in order to meet a minimum standard. The reservation clauses indicate that a party may opt out of this entirely. If either party to a tax treaty adopts a reservation, the existing provision will be preserved.
It’s also possible for a party to reserve the right to retain existing provisions that would deny benefits in the case of transparent entities established in third jurisdictions. Parties may also reserve the right to retain existing provisions that provide more detail about the treatment of factual situations and entities to which the provision is intended to apply.
A section of the MLI includes provisions for the mandatory binding arbitration of cases in which the competent authorities are unable to agree within a fixed period of time. This work includes the development of the substantive content of a mandatory binding arbitration provision.
A signing ceremony is expected to take place in early June 2017. The full MLI can be found here.
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