On November 24, 2016, the OECD published a press release that more than 100 jurisdictions have concluded negotiations on a multilateral instrument (MLI) that will swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.

The MLI is intended to transpose results from the OECD/G20 BEPS Project into more than 2 000 treaties worldwide. It aims to implement minimum standards to counter treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies. It is also intended to allow governments to strengthen their tax treaties with the other tax treaty measures developed in the OECD/G20 BEPS Project.

The MLI was developed over the past year, via negotiations involving more than 100 jurisdictions including OECD member countries, G20 countries and other developed and developing countries, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.

The MLI text and the related Explanatory Statement cover the following topics and related articles:

Part II: Hybrid Mismatches

  • Article 3 – Transparent Entities
  • Article 4 – Dual Resident Entities
  • Article 5 – Application of Methods for Elimination of Double Taxation

Part III: Treaty Abuse

  • Article 6 – Purpose of a Covered Tax Agreement
  • Article 7 – Prevention of Treaty Abuse
  • Article 8 – Dividend Transfer Transactions
  • Article 9 – Capital Gains from Alienation of Shares or Interests of Entities Deriving their Value Principally from Immovable Property
  • Article 10 – Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions
  • Article 11 – Application of Tax Agreements to Restrict a Party’s Right to Tax its Own Residents

Part IV: Avoidance of Permanent Establishment Status

  • Article 12 – Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies
  • Article 13 – Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions
  • Article 14 – Splitting-up of Contracts
  • Article 15 – Definition of a Person Closely Related to an Enterprise

Part V: Improving Dispute Resolution

  • Article 16 – Mutual Agreement Procedure
  • Article 17 – Corresponding Adjustments

Part VI: Arbitration

  • Article 18 – Choice to Apply Part VI
  • Article 19 – Mandatory Binding Arbitration
  • Article 20 – Appointment of Arbitrators
  • Article 21 – Confidentiality of Arbitration Proceedings
  • Article 22 – Resolution of a Case Prior to the Conclusion of the Arbitration
  • Article 23 – Type of Arbitration Process
  • Article 24 – Agreement on a Different Resolution
  • Article 25 – Costs of Arbitration Proceedings
  • Article 26 – Compatibility

Part VII: Final Provisions

  • Article 27 – Signature and Ratification, Acceptance or Approval
  • Article 28 – Reservations
  • Article 29 – Notifications
  • Article 30 – Subsequent Modifications of Covered Tax Agreements
  • Article 31 – Conference of the Parties
  • Article 32 – Interpretation and Implementation
  • Article 33 – Amendment
  • Article 34 – Entry into Force
  • Article 35 – Entry into Effect
  • Article 36 – Entry into Effect of Part VI
  • Article 37 – Withdrawal
  • Article 38 – Relation with Protocols
  • Article 39 – Depositary

Some of the above-listed articles contain minimum standards to which the signatories need to adhere to as a mandatory basis whereas some articles are either contain alternative approaches and / or are optional altogether. The part containing mandatory binding arbitration (Part VI) is fully optional: a signing party may choose to apply this part with respect to its covered tax treaties and shall notify the OECD Depositary accordingly. Consequently, this part shall apply in relation to two contracting jurisdictions only where both jurisdictions have made such a notification. The signing countries may also make reservations to certain paragraphs of the articles.

The national governments are currently preparing their lists of treaties to be covered by the MLI and are considering which options to select and reservations to make. The OECD will be the depositary of the multilateral instrument and will support governments in the process of its signature, ratification and implementation. The first signing ceremony of the MLI has been scheduled for June 2017 in Paris, France, “with the expected participation of a significant group of countries during the annual OECD Ministerial Council meeting” as stated in the official press release accompanying the publication of the MLI text. The actual convention shall enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of ratification, acceptance or approval.

For more information: