After a long waiting period, with many discussions as to its predicted content, the OECD’s Multilateral Convention pursuant to BEPS Action 15 is ready for prime time. Links to EY’s Global Tax Alert, and OECD’s Explanatory Statement and Multilateral Convention are provided for reference.
The Multilateral Convention is very flexible as to what a country wants, or does not want, within its treaty related provisions to signify its alliance with BEPS Actions.
EY’s Global Tax Alert states: “The tax treaty related BEPS measures covered by the multilateral instrument include (elements of): (i) Action 2 on hybrid mismatch arrangements, (ii) Action 6 on treaty abuse, (iii) Action 7 on the artificial avoidance of the PE status; and (iv) Action 14 on dispute resolution. The substance of the tax treaty provisions relating to these actions was agreed under the final BEPS package released in October 2015. The multilateral instrument does not modify or add to the substance of these provisions. The instrument is solely focused on how to modify the provisions in bilateral or regional tax treaties in order to align these treaties with the BEPS measures.”
Due to the flexibility of the new Convention, this unilateral based process poses many questions as to the consistency of intent for the related BEPS Actions around the world. It is certain that, in the short term, there will be considerable complexity and varying interpretations of what the Convention means. Accordingly, the Explanatory Statement and Multilateral Convention are to be reviewed carefully to understand short and long-term trends in this new era of international tax.
Click to access 2016G_04025-161Gbl_OECD%20releases%20MI%20to%20modify%20bilateral%20tax%20treaties%20under%20BEPS%20Action%2015.pdf
Click to access explanatory-statement-multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf
EY’s survey of nearly 100 jurisdictions provides timely insight into unilateral activities and required legislative efforts to implement OECD BEPS Actions 8-10, transfer pricing guidelines, and Action13, transfer pricing documentation / country-by-country (CbC) reporting.
A link to the survey is provided for reference:
Click to access EY-country-implementation-of-beps-actions-8-10-and-13.pdf
- OECD TP Guidelines:
- 7 countries (including the UK) to adopt the changes without need for legislative/administrative action
- 54 countries refer to OECD TP Guidelines by tax authorities/courts for interpretation, but are not binding
- 21 countries refer to OECD TP Guidelines in domestic legislation
- TP Guidelines are meant to be an extension of the Commentary to the arm’s length principle in Article 9; if the revised Guidelines go beyond such rules a change in existing treaties will be required for implementation, although the multilateral instrument in development under Action 15 may remedy this
- Tax authorities have used BEPS initiatives for leverage in Australia, Spain, Hungary, New Zealand, Finland, Indonesia, France and India
- TP and CbC documentation may be provided as an exchange of information if they are “foreseeably relevant”
- Legislative action will be required in most countries with current TP legislation to implement Master / Local File requirements
- Most countries will require a change in law for CbC reporting; 38 countries are/will have such implementation legislation, 49 countries are not yet known, while only 11 countries are not expected to implement in the short/medium term
- CbC information will be widely exchanged via exchange of information articles in double-tax treaties, tax information exchange agreements or Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (and the corresponding Multilateral Competent Authority Agreement)
The survey is a “must read” for interested parties that will be affected by OECD Actions 8-10 and 13; it magnifies the imperative of collecting such information timely and is not dependent on which countries adopt certain provisions the first year (as information will be exchanged quickly around the world regardless of which jurisdiction the parent entity resides in).
This link provides access to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters prescribing procedures for the exchange of information between tax authorities, in addition to press releases and related documents.
The Convention, and its provisions, are becoming more important with increased tax transparency and sharing of Best Practices among tax jurisdictions. The Multilateral Convention, as well as factors leading to its current and future importance provide valuable context in understanding the current state of affairs, and intentions to increase the exchange of information worldwide.