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At Taxand’s 2017 Global Conference in Frankfurt, a panel discussed the practical impact of the multilateral instrument on the application of bilateral tax treaties. The panel involved Antoine Glaize (Taxand France), Anders Oreby Hansen (Taxand Denmark) and guests.
The OECD’s Base Erosion and Profit Shifting (BEPS) initiative, conceived in 2014, has been one of the largest developments in global tax for a number of decades. It is a hugely ambitious and enormous task, but ultimately, BEPS is nothing without its implementation. The multi-lateral instrument is central to this implementation and will be crucial in determining whether BEPS can be effectively and properly deployed across the globe in a consistent manner.
The concept of the multilateral instrument (or ‘MLI’) was developed as a new initiative to allow countries to swiftly modify their tax treaties to implement the BEPS recommendations in a manner which is both desirable and feasible. The challenge for the OECD is to ensure this is done effectively.
The view of the panel is that the MLI will be a positive development in the long term. Multinationals recognise that the OECD and the countries participating in the BEPS process have achieved a lot, in a short amount of time, and reaching agreement on the MLI as a suitable mechanism for implementing BEPS is a significant achievement in itself. In this sense, the global tax community, including both policy makers like the OECD, taxpayers and tax advisors, is working closer than ever, and demonstrating collaboration against a tide of protectionism which is enveloping the international political world.
Whilst multinationals recognise the compliance burden presented by the MLI, the prospect of greater clarity and consistency in the application of tax treaties and the avoidance of double taxation are attractive prizes, and the minimum standards for matters such a mandatory arbitration of tax disputes, enforced through the MLI, encourage a tax environment with a lot more certainty than is currently the case.
All parties recognise that the implementation of the MLI will be a difficult journey and that we are only just taking the first steps. As ever, its various layers of complexity remain a key concern, although this can be navigated if there is adequate support from both governments and tax authorities. For example, the publication of consolidated versions of the treaties would simplify matters and add greater transparency.
Another concern is the macro-economic environment, and particularly the fact that MLI enforcement is playing out in an uncertain global environment where a number of political and economic uncertainties could affect its global deployment.
However, this concern is balanced by a ground swell of determination and collaboration to implement the MLI, by those who see it as a powerful and indispensable tool to ensure consistent BEPS implementation. Something multinationals and governments alike should welcome.
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In a poll of around 400 delegates at the conference, made up of multinational CFOs and Tax Directors, 78% felt the multilateral instrument will be of benefit to multinationals in the long term.