OECD announces agreement on multilateral tax treaty modification document

Once in force, the 'multilateral convention to implement tax treaty related measures' will transpose changes to international tax laws developed by the OECD as part of its base erosion and profit shifting (BEPS) project into the more than 2,000 tax treaties agreed between OECD members. It will also implement new dispute resolution measures.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that coordinating agreement on the multilateral instrument was a "phenomenal achievement".

"Mike Williams of the UK Treasury led the negotiations, and is to be congratulated on running such a complex process so efficiently," she said.

"There is still a long way to go – each country will have to specify precisely how the multilateral instrument will apply to each of its own treaties. But by June 2017, when the signing ceremony is expected to take place, the picture should be clearer," she said.

The BEPS project aims to combat the ability of multinational corporate groups to artificially shift their profits to low or no tax environments where they have little or no economic activity, and the exploitation of mismatches between different tax systems so that little or no tax is paid. The practice costs national tax authorities a "conservatively estimated" $100-240 billion annually, or the equivalent of 4-10% of global corporate income tax revenues, according to the OECD.

The OECD published a 15-point 'action plan' setting out the areas where it considered reform to be necessary in July 2013, followed by its final recommendations in October 2015. The OECD countries are now working on an 'inclusive framework' on BEPS-related measures, which will enable them to implement the changes into their own legislation and treaties. The multilateral instrument will enable them to avoid the "burdensome and time-consuming" process of agreeing changes to treaties with other jurisdictions individually.

OECD secretary-general Angel Gurría described the agreement as a "turning point in tax treaty history".

"It will save countries from multiple bilateral negotiations and renegotiations to implement the tax treaty changes in the BEPS project," he said. "More importantly, having more than 100 jurisdictions on board will help ensure consistency in the implementation of the BEPS project, which will result in more certainty and predictability for businesses and a better functioning international tax system for the benefit of our citizens."

"The multilateral instrument will result in tougher anti-avoidance rules in treaties, in line with the BEPS recommendations," said tax expert Heather Self. "One point of concern is whether these could then be used to challenge genuine business arrangements, leading to an increase in disputes."

"Dispute resolution has also taken a major step forward as a result of the agreement, with improved processes for settling multinational disputes and the ability to use binding arbitration in some cases. We will be watching closely to see how effective this proves to be," she said.