On May 31, 2016 the OECD released a Public Discussion Draft titled: “BEPS ACTION 15 - Development of a Multilateral Instrument to Implement the Tax Treaty related BEPS Measures”. The OECD invites public comments on technical issues identified in the Discussion Draft.

Comments and input should be submitted by June 30, 2016 at the latest, and should be sent by email in Word format. In the Discussion Draft it is emphasized that comments should be focused solely on technical issues of implementation and on issues related to the development of a MAP arbitration provision, rather than on the scope of the provisions to be covered in the multilateral instrument or on the substance of the underlying BEPS outputs.

 

In the Discussion Draft it is stated that the purpose of the multilateral instrument is to modify existing tax treaties to implement the tax treaty measures developed through the BEPS Project. As a result, with the exception of the development of a MAP arbitration provision, the mandate of the Ad Hoc Group does not include changing the substance of the BEPS outputs or creating new measures that were not developed during the BEPS Project. The Ad Hoc Group began its work on May 27, 2015 and aims to conclude its work and open the multilateral instrument for signature by December 31, 2016.

 

Examples of the technical issues and questions on which input would be useful are outlined in sections 3 and 4 of the Discussion Draft.

 

In section 2 of the Discussion Draft the OECD provides the following high level description of the multilateral instrument: 

·        The multilateral instrument will modify existing bilateral tax treaties in order to swiftly implement the tax treaty measures developed in the course of the OECD-G20 BEPS Project. The provisions to be implemented include in particular:

o       The treaty provisions developed under Action 2 of the BEPS Project (Neutralising the Effects of Hybrid Mismatch Arrangements), including (1) the revision of Article 1 (Persons Covered) of the OECD Model Tax Convention to address fiscally transparent entities, and (2) the measures to address issues with the application of the exemption method to relieve double taxation.

o       The provisions developed under Action 6 (Preventing the granting of treaty benefits in inappropriate circumstances), including the minimum standard on treaty abuse, the introduction of a “saving clause” to make explicit that treaties do not restrict a State’s right to tax its own residents, and the specific anti-abuse rules related to (1) certain dividend transfer transactions; (2) transactions involving immovable property holding companies; (3) situations of dual-resident entities; and (4) treaty shopping using third-country PEs.

o       Provisions developed under Action 7 (Preventing the Artificial Avoidance of PE Status), including (1) measures to address commissionnaire arrangements and similar strategies; (2) modifications the specific activity exemptions under Article 5(4) of the OECD Model and the addition of an anti-fragmentation rule; and (3) measures to address the splitting-up of contracts to abuse the exception in Article 5(3) of the OECD Model.

o       Measures included in the minimum standards and best practices produced under Action 14 (Making Dispute Resolution Mechanisms More Effective), including the changes to paragraphs 1 through 3 of Article 25 of the OECD Model, as well as the inclusion of paragraph 2 of Article 9 of the OECD Model.

·        In addition to the implementation of the measures described above, a number of countries declared their commitment to provide for mandatory binding MAP arbitration as a mechanism to guarantee that treaty-related disputes will be resolved within a specified time frame. An optional provision on mandatory binding MAP arbitration is being developed as part of the negotiation of the multilateral instrument.

 

According to the OECD a number of technical issues arise from developing a multilateral instrument to modify bilateral tax treaties. According to the OECD these include, for example, issues related to:

·        The relationship between the provisions of the multilateral instrument and the existing tax treaty network.

·        Ensuring consistent application and interpretation.

·        Modifying bilateral treaties in multiple authentic languages.

 

According to section 4 of the Discussion Draft, comments are requested on the technical issues that may arise from implementing the treaty-related BEPS measures in the context of the network of existing bilateral tax treaties. In particular, comments are requested with respect to:

·        Technical issues that should be taken into account in adapting the BEPS measures to modify or supersede existing provisions of bilateral tax treaties that may vary from the OECD model, including:

o       Existing provision or types of provisions that serve the same purpose as the BEPS measures and that would need to be replaced

o       Existing provisions or types of provisions that are similar to BEPS measures but that would need to be retained

·        The approach to be taken in developing the optional provision on mandatory binding MAP arbitration, taking into account that it would need to serve the needs of the countries that have already committed to implement mandatory binding arbitration, as well as countries that are considering committing in the future.

·        The types of guidance and practical tools that would be most useful to taxpayers in understanding the application of the multilateral instrument to existing tax treaties.

·        Mechanisms that could be used to ensure consistent application and interpretation of the provisions of the multilateral instrument.

 

Click here to be forwarded to the Discussion Draft as available on the website of the OECD, which will open in a new window.

 

The OECD also announced that a public consultation meeting on the multilateral instrument will be held in Paris at the OECD Conference Centre on July 7, 2016 beginning at 10.00 CET. People wishing to attend the meeting have to register online. The OECD has also announced that a live webstream of the meeting will be available. More information with respect to this meeting can be found here.

 

 

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