BEPS Multilateral Instrument Comes Into Effect
Here’s a conundrum: How do you go about BEPSifying the entire global network of double tax avoidance treaties – or the majority of them at least – without testing out the theory that time is infinite? You use an instrument of course! By which I don’t mean you rewrite the world’s tax treaties using the power of song. This is the OECD’s BEPS Multilateral Instrument, which is considerably less entertaining. But more effective. Probably.
Given that the MLI went into effect on July 1, it’s too early to tell how the changes to be brought about will work in practice. But while it’s likely to shorten the global treaty reform process by several years, the process isn’t going to be an easy one by any stretch of the imagination.
Here’s the thing about the MLI: it’s not a one size fits all solution. It’s more like 40 sizes fits a few thousand. And the danger of having so many sartorial options to choose from is that you’d never leave the house. How, therefore, are taxpayers doing business across multiple jurisdictions expected to cope with this vast and ever-changing wardrobe of treaty positions, covered agreements, and optional arrangements? The answer is actually quite simple. Get a computer to work it all out for you. Indeed, the OECD is already developing an MLI matching database to help taxpayers navigate this complex matrix of signatories’ MLI positions. Thank goodness for that!
But hold on just a minute. Don’t get your hopes up too high that this system will solve all the problems. For starters, it’s still in beta mode. And, as the OECD itself cautions, it can only provide “projections” of treaty changes in cases where a signatory has yet to ratify the instrument. But, even when a country has completed its ratification procedures, it is permitted to change its MLI positions at any time. Let’s hope somebody remembers to tell the computer when the changes do occur, then.
A lot has been said and written about how BEPS changes at jurisdictional level are making life difficult for multinational entities, especially with regards to transfer pricing and audits. But perhaps the impact of the MLI, which will help change the very legal fabric of international commerce, has been somewhat overlooked.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look