Executive summary

On 6 February 2015, the Organisation for Economic Co-operation and Development (OECD) released a trio of papers that address three of the focus areas in its Action Plan on Base Erosion and Profit Shifting (BEPS). The OECD will present these developments during the G20 Finance Ministers' meeting on 9-10 February 2015.

One of the documents, titled Action 15: A Mandate for the Development of a Multilateral Instrument on Tax Treaty Measures to Tackle BEPS, includes the mandate (the Mandate), agreed by the OECD and G20 countries, with respect to the process for developing the multilateral instrument contemplated under Action 15. The Mandate authorizes the establishment of an ad hoc group (the Group) to conduct work on a multilateral instrument that would implement solely the BEPS measures that take the form of recommended tax treaty provisions. The Group is to have its first meeting no later than July 2015 and is to aim to have the multilateral instrument ready to open for signature by year-end 2016.

Detailed discussion

Background

In its report on Action 15 of the BEPS Action Plan dated 16 September 2014 (the Report), the OECD concluded that a multilateral instrument was a desirable and feasible way of implementing treaty-based measures developed under the other BEPS Actions. (See EY Global Tax Alert, OECD releases report under BEPS Action 15 on feasibility of developing multilateral instrument to amend bilateral tax treaties, dated 19 September 2014.) The Report recommended the convening of an international conference in early 2015 to develop and negotiate the content of such multilateral instrument. The OECD statement accompanying the Report indicated the intention to develop and agree on a mandate for such process.

Overview

The Mandate reflects the agreement of the OECD and G20 countries on the process for development of the multilateral instrument under Action 15, addressing a range of matters including the scope of the instrument, the participation by countries in the process, and the duration and governance of the process. The document released by the OECD on 6 February 2015 that contains the Mandate includes additional explanation regarding the decisions reflected in the Mandate.

Scope

The scope of the multilateral instrument is to be limited to tax treaty measures developed during the BEPS project. Because work on several Actions is still ongoing, the Mandate does not provide a list of treaty-based measures to be included. However, the explanation indicates that the negotiations should include tax treaty provisions developed under Action 2 (hybrid mismatch arrangements), Action 6 (treaty abuse), Action 7 (permanent establishment), and Action 14 (dispute resolution). In addition, the negotiation could include any tax treaty modifications that may result from work on implementation of country-by-country reporting under Action 13 (transfer pricing documentation) or from work on Actions 8-10 (transfer pricing).

The explanation indicates that the negotiation of the multilateral instrument will have to consider for each provision whether it is optional or whether it will form part of a minimum standard for joining the multilateral instrument. The explanation notes that this will involve balancing the need for flexibility to obtain broad adoption of the instrument against the need to develop an instrument that would be effective in addressing BEPS.

The Report had noted that the multilateral instrument could be used to host additional provisions in the future. Although this was not included in the scope of the Mandate, the explanation indicates that the Group could study "possible further steps to continue to streamline the implementation of future agreed changes to the OECD Model Tax Convention."

Participation and organization

The Mandate provides that participation in the development of the multilateral instrument will be open to all interested countries, including non-OECD or G20 members, with all participating on an equal footing. Non-State jurisdictions and international and regional organizations may be invited to participate as observers.

The Group will work under the aegis of the OECD and the G20 and will be served by the OECD Secretariat, but will not be a formal or informal OECD body. The term of the Group will end when the multilateral instrument is opened for signature.

Although the work on tax treaty measures under the BEPS Action Plan will not be finalized before September 2015, the Mandate requires the Group to start its work no later than July 2015. The explanation indicates that initial meetings could, for example, address the introductory provisions of the multilateral instrument and the general interaction with existing treaties. The Mandate provides that the aim is to finalize the multilateral instrument and open it for signature no later than 31 December 2016.

Implications

The multilateral instrument contemplated under Action 15 is part of the OECD's effort to maintain momentum and to achieve results from the BEPS project as quickly as possible. However, as a practical matter, the role of such a multilateral instrument and the impact such an instrument may have on businesses are unclear at this stage. Moreover, the appetite of countries to sign up to a multilateral instrument also is not clear. Global businesses should continue to monitor developments with respect to this Action 15 and the OECD BEPS project more generally and also should continue to monitor BEPS-related developments in the countries where they operate or invest.

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