On 24 November 2016, the OECD published the multilateral instrument, designed to implement those BEPS measures that impact on existing double tax treaties (BEPS Action 15). The Multilateral Instrument is arguably the most ambitious aspect of the entire BEPS project. It is anticipated by the OECD that the Multilateral Instrument will provide for the amendment of approximately 2,000 of the 3,000 tax treaties currently in existence, without the need for each treaty to be individually amended.
The Multilateral Instrument will not actually directly amend the existing tax treaties of participating states, but will sit alongside the relevant treaty modifying it for the purpose of implementing those BEPS measures which impact on existing tax treaties, most notably:
• Action 2 – hybrid mismatches
• Action 6 – preventing treaty abuse
• Action 7 – preventing PE status avoidance
• Action 14 – dispute resolution.
Recognising that not all provisions will be acceptable to every participating state, the Multilateral Instrument includes provisions that a state may opt out of, or choose an alternative option. The default position is that, in such cases, both parties to a particular tax treaty must choose the same option (though this will not always be the case). This flexibility makes the achievement no less impressive (and indeed is a necessity) but will doubtless result in some complexities in terms of application.
Although participating states are encouraged to produce updated, consolidated versions of their treaties as ‘amended’ by the Multilateral Instrument, there is no requirement to do so. This could, conceivably, add an extra layer of complexity for those looking at the application of a particular double tax treaty.
The Multilateral Instrument is open for signature from 31 December 2016.
The Multilateral Instrument can be viewed here.