Multilateral convention: BEPS implementation

The adoption on 24 November 2016 by more than 100 States, including Luxembourg of the multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting (the “Multilateral Convention”) should enable a fast and efficient application of part of the Base Erosion Profit Shifting (“BEPS”) principles in more than 2,000 bilateral tax treaties.

The Multilateral Convention will cover part of the BEPS principles, including among others, Hybrid Mismatch Arrangements (BEPS Action 2), Treaty Abuse (BEPS Action 6) and in particular the limitation-on-benefits, the principle purpose test rules or the anti-abuse rule for permanent establishments situated in third jurisdictions, as well as the avoidance of permanent establishment status (BEPS Action 7), or the improvement of dispute resolution (BEPS Action 14). 

The Multilateral Convention provides mandatory “treaty-related minimum standards” whose specific content is to be defined be each signatory State via opt-in/opt-out mechanisms. Flexibility is therefore given to the States to define the preferred way to meet and/or implement such minimum standards in their respective treaty network. The minimum standards are mandatory unless the tax treaty in question already meets the requirements. Signatory States will specify their positions via a notification addressed to the OECD, in its capacity as depositary of the Multilateral Convention. 

The Multilateral Convention has been open for signatures since 31 December 2016 and will enter into force after being ratified, accepted or approved by at least, five States. A preliminary signing session is expected in early June 2017. The effects will start (i) with respect to withholding taxes on the first day of the next calendar year that begins on or after the dates on which the Multilateral Convention enters into force between Signatory States, and (ii) for all others taxes, for taxable periods after the expiry of a period of 6 calendar months after the date on which the Multilateral Convention enters into force between Signatory States.

The OECD will further develop guidelines regarding the domestic signing, ratification and implementation process of the amended tax treaties to ensure clarity and legal certainty.

Further details on the implementation of the Multilateral Convention, the covered treaties and the specific options selected by Luxembourg will be provided in a later edition. In the meantime, please click on the following link to access the OECD website dedicated page: http://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-beps.htm