Multilateral convention closes tax treaty loopholes

More than 100 jurisdictions have concluded negotiations on a multilateral instrument that will implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.

The new instrument will transpose results from the OECD/G-20 Base Erosion and Profit Shifting Project (BEPS) into more than 2,000 tax treaties worldwide, according to a press release. A signing ceremony is scheduled for June 2017 in Paris.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS implements minimum standards to counter treaty abuse and to improve dispute resolution mechanisms, but maintain flexibility to accommodate specific tax treaty policies.

It will also allow governments to strengthen their tax treaties with other tax treaty measures developed in the OECD/G-20 BEPS Project, the Organization for Cooperation and Economic Development said.

The OECD/G-20 BEPS Project aims to close the gaps in international rules that allow corporate profits to be artificially shifted to low or no tax environments, where companies have little or no economic activity.

Revenue losses from BEPS are estimated at US$100 billion to $240 billion annually, or the equivalent of 4 percent to 10 percent of global corporate income tax revenues, the OECD said.

More than 100 countries and jurisdictions are working in the inclusive framework on BEPS to implement the measures in their domestic legislation and treaties.

The sheer number of bilateral treaties makes updates to the treaty network on a bilateral basis burdensome and time-consuming, the press release states. The new multilateral convention helps solve this problem by modifying tax treaties between two or more parties to the Convention. The convention will not directly amend the text of tax agreements, but instead be applied alongside existing tax treaties, modifying their application to implement the BEPS measures.

“The adoption of this multilateral instrument marks a turning point in tax treaty history,” said OECD Secretary-General Angel Gurría. “It will save countries from multiple bilateral negotiations and renegotiations to implement the tax treaty changes in the BEPS Project. More importantly, having more than 100 jurisdictions on board will help ensure consistency in the implementation of the BEPS Project, which will result in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens.”

The multilateral convention was developed over the past year, in negotiations involving more than 100 jurisdictions under a mandate from the G-20 Finance Ministers and Central Bank Governors.

The negotiations were led by Mike Williams, Director of Business and International Tax at HM Treasury, United Kingdom.

“The conclusion of negotiations on the instrument is a major achievement,” said Mr. Williams. “The conclusion of this process also marks a beginning, as important work lies ahead for governments to prepare their own processes for signature, ratification and implementation.”

The OECD will be the depositary of the multilateral instrument and will support governments in the process of its signature, ratification and implementation, the press release states.

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