ActionAid briefing on The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting

As part of the base erosion and profit shifting (BEPS) process which was initiated in 201 3, the OECD was tasked to come up with recommendations on different areas of international tax standards.

One of the outcomes of the process was a Multilateral Convention (MC-BEPS) to implement changes to tax treaties. Countries around the world are now being encouraged to sign this Convention, which is also known as the Multilateral Instrument (MLI). The Convention is meant to implement the following changes to tax treaties:

  • Prevent hybrid mismatches
  • Prevent treaty abuse
  • Strengthen Permanent Establishment definitions
  • Amend dispute resolution provisions
  • Any country can sign up to the Convention but no country has to. There is also a long list of reservations that countries can make against individual provisions in the Convention if they do sign up to it. Countries are also free to withdraw from the Convention at any time.

While the Convention contains many potential improvement on some of provisions that currently exist in most tax treaties, developing countries should carefully consider if it is in their interest to sign it at this stage. Much uncertainty remains about the impact of the Convention, including on its entrenching the role of the Organisation for Economic Cooperation and Development (the OECD) – an Paris based organisation consisting of 35 of the richest countries in the world - as the standard and policy setting body on international tax norms. This may not be in developing countries interest.