On 5 October 2015 the OECD published the final reports for its project on tackling base erosion and profit shifting (“BEPS”). One of the key proposals of these BEPS reports was the development and introduction of a multilateral instrument (“MLI”), which would modify existing bilateral tax treaties to address treaty-related BEPS issues.
The OECD recently provided an update on the expected timeline for implementing the MLI, as well as confirming brief details of how the MLI is expected to operate. The full name of the MLI has also been confirmed as the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting”.
Operation of the MLI
In a recent OECD webinar, Jesse Egbert (Senior Adviser on the BEPS Project) provided some confirmation as to how the MLI will work in practice. Rather than amending the text of existing bilateral tax treaties (of which there are over 2,500, in various languages and with differing numbering systems), the MLI will itself be an operative legal document and ‘sit on top’ of bilateral tax treaties to implement certain BEPS measures.
In some cases, the MLI will do this on a standalone basis, so that one would look to the MLI to see whether or how particular measures would apply. In other cases, where a subject is covered by existing bilateral tax treaties, there is a need to show how the MLI and the bilateral tax treaties would interact. This has been achieved by including ‘compatibility clauses’ in the various MLI provisions, identifying those provisions of the bilateral tax treaties that will be modified or superseded by the operation of the MLI.
Timing of the MLI
During the OECD webinar it was also confirmed that the text of the MLI will be made available in November 2016. The text will not be shared before it has been agreed, although it will be published before being signed: signing is currently expected to take place in the first half of 2017.
Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, noted that the timing was a sensitive issue and that, as the OECD favours transparency, there was an argument for publishing the text before it was agreed. However, since it is the established practice of treaty negotiators to not publish texts before they are agreed, and the substance of the MLI was already known as being the implementation of the (already-published) BEPS proposals, the decision had been made to publish after initialling but before signing.