Grant Wardell-Johnson analyses the OECD's new Multilateral Instrument, which could modify thousands of international tax treaties.
On Thursday in Paris, Friday in Australia, Pascal Saint-Amans issued a media release saying that more than 100 jurisdictions (indeed 99 countries plus Guernsey, Isle of Man and Jersey), known as the ad hoc group, had concluded negotiations for a Multilateral Instrument pursuant to Action 15 of the BEPS Action Plan. This is contained in the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, of 48 pages, and an Explanatory Statement of 85 pages. These documents had been negotiated in relative secrecy. A signing ceremony will be held in June 2017 in Paris.
The Convention contains 39 Articles divided into 7 Parts which deal with:
The Convention contains substantial flexibility, which leads to significant complexity. Most of the changes are optional, although there are three minimum standards; the Preamble to Treaties, Treaty Abuse, & Dispute Resolution. There is optionality within most measures. Countries can decide whether they want specific treaties to be covered or not. Countries can choose to make specified reservations, but they cannot not include any form of reservation (ie. it is not open).
Countries can later withdraw or separately modify treaties through bilateral negotiation including areas covered by the Convention. However, there is one area of significant inflexibility, which I believe to be beneficial. Once a country has chosen that an agreement will be covered, its position (including reservations) must apply to all countries. It can’t take a position for one that would not apply to another. This is quite fundamental and I believe will lead to greater consistency across the 2,000 to 3,000 tax treaties.
The effective start date for each “Covered Tax Agreement” will depend on when the parties ratify. For withholding taxes this will be the first day of the calendar year after both ratify. For other items it will the taxable period starting 6 months after ratification. So, I suspect many of these changes are likely to apply from 2019 or 2020, but could be as early as 2018.
As one says - watch this space.