For the last several years, OECD and G20 have actively been promoting measures aiming for prevention of tax avoidance strategies. For this purpose, BEPS(Base erosion and profit shifting) project is currently subject of implementation. BEPS is focused onprevention of lowering the tax base (base erosion) and shifting the profits to low or no tax environments (profit shifting).
Multilateral Convention as part of BEPS project
As part of this initiative (so called BEPS Action 15), the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“Convention”) was developed. The Convention allows for the automatic modification of the tax treaties concluded by the given jurisdictions – without long-lasting bilateral re-negotiations of the particular treaties.
The Convention was recently signed at the OECD’s headquarter in Paris, during the official signing ceremony (which took place on 7 June 2017). According to OECD’s information as of 11 July 2017, representatives of 70 jurisdictions have already signed the Convention and 7 more jurisdictions have expressed their intention to sign it.
The Convention’s effects
The above numbers show that the Convention may have a significant impact on the tax treaties worldwide. OECD assumes that more than 1,100 tax treaties may be changed as a result of the Convention. What is more, according to these assumptions, the first modifications to bilateral tax treaties are expected to enter into effect even in early 2018 (it is necessary that the signatories complete domestic ratification procedures as it will determine the effect of changes).
What this means to your businesses?
After entry into force, the changes of the particular tax treaties may influence the income tax consequences of the international transactions (e.g. it may influence determination of occurrence of permanent establishment in the given country). Therefore, it is important to verify whether the Convention may have an effect on the particular tax treaties used for the determination of tax consequences in the given business or transaction, to determine the scope of the possible changes and to prepare for them.
Look for advisors that will help you prepare for the changes.