BEPS Action 15 – Developing a Multilateral Instrument


On October 5, 2015 the OECD published the final reports for its project on tackling base erosion and profit shifting (BEPS). The BEPS project sets out 15 actions, of which many cannot be realized without amending bilateral tax treaties. Given the fact that a huge number of such treaties are currently in effect, the implementation of these changes on a treaty-by-treaty basis would be a long process. The report on BEPS Action 15 developed and introduced a multilateral instrument in order to allow countries to swiftly amend their existing bilateral tax treaties to implement the tax treaty-related BEPS recommendations.



On November 24, 2016 the OECD released the "Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS", which will implement minimum standards to counter treaty abuse and to improve dispute resolution mechanism while providing 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 BEPS project.

The multilateral instrument contains specific formulations for implementing the final BEPS results into exisiting tax treaties with regard to the following BEPS Actions:

The multilateral instrument will operate to modify tax treaties between two or more parties. Rather than amending the text of existing bilateral tax treaties, the multilateral instrument will itself be an operative legal document and "sit on top" of bilateral tax treaties to implement certain BEPS measures. Thus, the multilateral instrument will be applied alongside existing tax treaties. In some cases, the multilateral instrument will perform this on a standalone basis. In other cases, where an issue is covered by existing bilateral tax treaties, there is a need to show how the multilateral instrument and the bilateral tax treaties would interact. Overall, the multilateral instrument is a complex instrument, which shall grant sufficient flexibility to the contractual parties and therefore enables a number of reservations as well as the selection of various options.
From a transfer pricing perspective, especially the new wording on the establishment of PEs and the possibilities of dispute resolution in double taxation cases should be pointed out. The multilateral instrument contains separate articles with regard to PE regulations, which represent a clear demarcation of commissionaire models, the artificial splitting of business activities (so-called ”splitting-up contracts”) and the revision of the exemptions regulated within the tax treaties. Within the scope of improving the effectiveness of dispute resolution mechanisms the focus lies on the implementation of the minimum standard intended by the OECD. This standard shall be introduced into all existing tax treaties which not yet include the corresponding article in order to create the possibility of a Mutual Agreement Procedure (MAP) for the taxpayer.


Next steps

The multilateral instrument of BEPS Action 15 is one of the key issues of the OECD's effort to implement the recommended measures. More than 100 jurisdictions have already 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 potentially transpose results from the BEPS project into more than 2,000 tax treaties worldwide. A signing ceremony will be held in June 2017 in Paris with the expected participation of a significant group of countries.


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