The BEPS Multilateral Instrument

By Heike Kempf, WSB Wolf Beckerbauer Hummel & Partner Steuerberatungsgesellschaft mbH

The OECD Base Erosion and Profit Shifting (BEPS) Programme involves over a 100 countries collaborating on its implementation. BEPS Action 15 is the development of The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Countries can use the MLI to implement various treatyrelated measures.

The MLI includes 35 Articles. Countries may choose to implement any or all of them. The Articles are far-reaching, covering many BEPS recommendations. However, in practice, many countries have been electing to implement a small number of the Articles. The most common Articles selected include:

• Article 3: Transparent Entities
• Article 7: Prevention of Treaty Abuse
• Article 8: Dividend Transfer Transactions
• Article 13: Artificial Avoidance of Permanent Establishment (PE) status

The MLI signatories (approximately 70 so far) include the UK, all members of the European Union, and China, but notably not the United States.

The MLI is not a stand-alone tax treaty, but rather modifies existing bilateral tax treaties where the treaty partners have notified the OECD that the MLI applies to the treaty. The parties can choose which tax treaties are modified by the MLI, and retain the right to make subsequent bilateral amendments to their tax treaties.

Canada’s long list of reservations may reflect a defensive posture to keep the door open until the MLI is ratified. Both China and the UK intend to retain the current provisions in their respective tax treaties, and do not intend to adopt most of the PE revisions. In contrast, Mexico has elected to apply the PE provisions related to commissionaire arrangements.

The MLI update process has only just begun, and a host of complex issues remain to be resolved in the coming years.

Heike Kempf

WSB Wolf Beckerbauer Hummel & Partner Steuerberatungsgesellschaft mbH, Heidelberg, Germany
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Heike Kempf is a Tax Consultant and has been working at WSB Wolf Beckerbauer Hummel & Partner Steuerberatungsgesellschaft mbH in Heidelberg since 2009. She recently completed a summer secondment in the Tax Group of GGI member firm Shea Nerland LLP in Calgary, AB, Canada.

Published: Winter 2017 l Photo: bbsferrari - Fotolia.com