Ministers and high-level officials from 68 countries and jurisdictions have signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting; while 8 others formally expressed their intention to sign.

This multilateral convention will swiftly implement a series of tax treaty measures to update the existing network of bilateral tax treaties and reduce opportunities for tax avoidance by multinational enterprises. It will also strengthen provisions to resolve treaty disputes, including through mandatory binding arbitration, thereby reducing double taxation and increasing tax certainty.

The signing ceremony took place yesterday during the annual OECD Week. It marks an important milestone in the international tax agenda, which is moving closer to the goal of preventing base erosion and profit shifting (BEPS) by multinational enterprises.

The new convention, which is the first multilateral treaty of its kind, allows jurisdictions to transpose results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. It was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.

“The signing of this multilateral convention marks a turning point in tax treaty history,” said OECD Secretary-General Angel Gurría.

“We are moving towards rapid implementation of the far-reaching reforms agreed under the BEPS Project in more than 1,100 tax treaties worldwide, and radically transforming the way that tax treaties are modified. Beyond saving signatories from the burden of re-negotiating these treaties bilaterally, the new convention will result in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens. Today’s signing also shows that when the international community comes together there is no issue or challenge we cannot effectively tackle.”

The OECD/G20 BEPS Project seeks to close the gaps in existing international rules that allow corporate profits to disappear or be artificially shifted to low or no tax environments, where companies have little or no economic activity. Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or the equivalent of 4-10% of global corporate income tax revenues. Almost 100 countries and jurisdictions are currently working in the Inclusive Framework on BEPS to implement BEPS measures in their domestic legislation and bilateral tax treaties. The sheer number of bilateral treaties makes updates to the treaty network on a bilateral basis burdensome and time-consuming.

The new multilateral convention will solve this problem. It will modify existing bilateral tax treaties to swiftly implement the tax treaty measures developed in the course of the OECD/G20 BEPS Project. Treaty measures that are included in the new multilateral convention include those on hybrid mismatch arrangements, treaty abuse, permanent establishment, and mutual agreement procedures, including an optional provision on mandatory binding arbitration, which has been taken up by 25 signatories.

The first modifications to bilateral tax treaties are expected to enter into effect in early 2018.

The text of the convention, the explanatory statement and background information are available here.

 

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