OECD BEPS multilateral instrument signed - KPMG United Kingdom
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OECD BEPS multilateral instrument signed

OECD BEPS multilateral instrument signed

The instrument will update existing bilateral tax treaties for a number of measures to tackle tax avoidance.


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On 7 June 2017, representatives from 68 countries and jurisdictions signed the OECD’s multilateral instrument (MLI), introduced as part of their base erosion and profit shifting (BEPS) project; a further eight countries have formally expressed an intention to sign. The MLI will implement a number of tax treaty measures which will update, based on the current signatories, an existing network of around 1,100 bilateral tax treaties to implement the treaty-based recommendations of the BEPS process, including measures to prevent treaty abuse, changes to the definition of permanent establishment (PE), changes to the residence tie-break for companies, mutual agreement procedures, and mandatory binding arbitration.

As part of the signing procedure, the OECD has provided countries with templates to allow them to file a list of their agreements that are covered by the MLI. A document containing this information, with links to the official statement for each jurisdiction (in terms of covered tax agreements, and provisional options and reservations) has now been published by the OECD on their website. The OECD do not plan to prepare consolidated texts of treaties (i.e. a document that combines the MLI and DTA components), as they are expecting local governments to handle this on a domestic basis (if they choose to do so at all).

The changes in the MLI apply only if both parties to a double tax treaty have designated it as a ‘Covered Tax Agreement’ (CTA). Not all countries have designated all their treaties as CTAs – but it is expected that once the MLI is ratified by each country, more agreements will be added. It also remains to be seen if ratification of the MLI is enough to bring the changes into domestic law: in some countries ratification will potentially be a long process (e.g. Germany where ratification will need to be done treaty by treaty) – debate was had as to whether the domestic procedures could be undertaken first for all treaties followed by the ratification of the MLI, which would adapt all treaties in one go, or whether the MLI should be ratified first and then treaties gradually adapted as they are individually ratified. The OECD expects few countries to have these difficulties.

Parties to the MLI have freedom to opt out of certain parts of the instrument, and some opt outs have already been announced:

  • Minimum standard anti-treaty abuse rule– the MLI allows opt-out only where the CTA already has an equivalent anti-abuse rule. 
  • The anti-abuse principal purpose test (PPT) will be adopted by all current signatories, with some countries also intending to supplement the PPT with a limitation on benefits clause (either through the MLI itself, or through subsequent bilateral negotiation with treaty partners). 
  • The mandatory binding arbitration provision will be signed by 25 jurisdictions, with further signatories expected once appropriate carve-outs are agreed. 
  • The various changes to the PE definition will each be adopted by between 35 and 65 countries. The provisions on anti-fragmentation and the specific activity exceptions will be more widely adopted than the provisions for dependent agent.

The OECD currently believes that the threshold of five countries depositing instruments of ratification will be reached by 30 September 2017. The date that threshold is reached is the date the MLI enters into force for treaties between those countries that both contracting states have designated as a CTA. The date the MLI enters into force is not the same as that from which it takes effect- if the threshold of five countries depositing instruments of ratification is reached in September 2017, the MLI changes relating to those CTAs apply, for withholding tax purposes, from 1 January 2018 (unless the contracting state in question opts for them to apply from the start of the next following taxable period), and for all other purposes for taxable periods beginning on or after 1 July 2018 (unless the contracting states agree on an earlier date).

For further information please contact:

Robin Walduck


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