Paris, 5 December 2016
The International Chamber of Commerce (ICC) welcomes the Organisation for Economic Co-operation and Development’s (OECD)’s release last week of a multilateral convention which allows for swift implementation of a series of tax treaty measures encompassed in the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. The release follows the conclusion of negotiations involving more than 100 jurisdictions, in a process that aligned with recommendations in Action 15 of the 2015 BEPS Final Report.
In order to address BEPS in a targeted and coordinated manner, BEPS Action 15 proposed a multilateral instrument that could be used as an alternative to the burdensome task of renegotiating over 2,000 bilateral tax treaties to implement various treaty-based proposals recommended by the BEPS Project.
At the conclusion of the G20-mandated OECD/BEPS project in October last year, ICC underscored the need for the rules to be implemented in a coherent and coordinated manner, including non-OECD countries, to ensure a consistent international tax landscape.
From the perspective of the business community, international consistency is an important prerequisite to avoid double taxation and ensure the required legal certainty to facilitate international trade and investment.
The multilateral convention seeks to transpose results from the BEPS project into more than 2,000 tax treaties worldwide. The Multilateral instrument (MLI) is not intended to replace existing tax treaties, but is rather meant to be applied alongside existing tax treaties to modify their application in a manner that implements various BEPS measures. The treaty related measures from the BEPS project include those under Action 2 (Hybrid Mismatches), Action 6 (Prevention of Treaty Abuse), Action 7(Avoidance of Permanent Establishment Status) and Action 14 (Improving Dispute Resolution).
MLI signatories must agree to adopt the various minimum standards in the BEPS Project, subject to flexibility in the MLI regarding the approach that a jurisdiction may follow. A signing ceremony for the MLI will be held in June 2017 in Paris.
ICC recognizes the risk for potential conflicts between existing tax treaties as well as the potential short term increase in uncertainty as a result of the process of ratification and implementation. Furthermore fundamental differences in views with respect to the allocation of taxing rights, together with the aggressive approach that many countries are taking towards transfer pricing and related issues, will likely result in a continued increase in international tax disputes. As a result, ICC reiterates the need for robust dispute resolution mechanisms with mandatory agreements to mitigate anticipated international tax disputes in the coming years.
ICC has been extensively involved in the OECD BEPS process representing global business views, from major multinational firms through to SMEs in every region of the world, and continues to contribute expertise to the work of the UN’s Committee of Experts on International Cooperation in Tax Matters on tax dispute resolution.