RSM Australia

BEPS: the reality of implementation moves a step closer


The reality of BEPS as the new ‘global tax standard’ took a step forward when the OECD released a Public Discussion Draft (PDD) on 31 May 2016, inviting comment on certain technical issues relating to the forthcoming Multilateral Instrument (MLI). The MLI will facilitate the early and efficient upgrade of the network of existing double tax agreements towards that global standard.

This is the first significant BEPS development in some months after the publishing pause which followed the release of the final reports in October 2015. The PDD confirms the work programme is on schedule, and the MLI will be open for signature by States from 31 December 2016. Once signed, the new BEPS standard will be applicable to the signatory countries, and enterprises that are resident within or trade with those countries will be affected.

The new global tax standard

The package of BEPS measures provides for:

  1. changes to States’ domestic tax laws; and
  2. changes to international tax laws.

Domestic tax law changes, including their timing, will fall to individual States (although peer pressure can be expected to play a part). But changes to international tax laws cannot wait the 50 or so years it would take in the ordinary course to update existing double tax agreements. Far from closing tax gaps, an uncoordinated upgrade process would likely open more gaps and provide opportunities for more and new BEPS strategies.

An ad hoc group of 96 countries and organisations has been working since May 2015 to implement the BEPS Action 15 recommendations, and develop a Multilateral Instrument which can achieve the international tax law upgrade efficiently and in a coordinated manner. The brief of this group is to focus on delivering a ‘working’ MLI; not to modify any of the agreed BEPS recommendations, nor to extend the BEPS work beyond the agreed recommendations. (By exception – the group is further developing the proposed mandatory arbitration process for mutual agreement procedures (MAPs) for those countries submitting to this measure.)

Discussion issues

The text of the MLI is being negotiated confidentially at Government level, but there have been a number of technical issues on which the OECD has sought public input. At a general level, these issues look to the relationship between the MLI and existing bilateral double tax agreements; ensuring a consistent application and interpretation across a range of different double tax agreements; and how to manage differing ‘authentic languages’ – with the MLI proposed to be settled only in the English and French languages.

Specific topics have been identified:

  1. In moving to a single ‘standard’, what approach can be adopted to address existing tax positions which differ from the current OECD model positions? How to remove existing provisions which may address BEPS issues but in a different language, or other provisions which may be inconsistent with BEPS measures. Conversely, provisions may exist which have a similar effect to BEPS measures and should be retained.
  2. How to approach the development of a mandatory binding MAP arbitration for those countries who agree, and for those who may move towards it.
  3. What type of guidance and practical tools will be useful in understanding the application of the MLI to existing bilateral double tax agreements.
  4. What steps can be taken to ensure Revenue Authorities around the world adopt a consistent application and interpretation of the provisions of the MLI, in the context of upgrading existing double tax agreements.


As was made clear in the BEPS Action 15 Reports, the existing bilateral double tax agreements will remain the authoritative legal instruments. But the MLI will upgrade those bilateral agreements to the BEPS standard, to the extent the two signatory States agree, in a likely short form ‘speed dating’ negotiation.

It is understood that States are modifying their existing standard treaty positions with a view to moving quickly to sign up to the MLI at the earliest possible time. For business, this is a two edged sword – on the positive side, multilateral moves should serve to reduce the impact of unilateral action by individual States; but on the other hand, the time to prepare and restructure existing arrangements (where necessary) will be short.

One suggestion made in the PDD is that consolidated versions of the underlying double tax agreements will be prepared. That holds some promise, but the scope for Revenue Authorities to adopt inconsistent interpretations looms large, particularly in the early stages of implementation. If this occurs, the ad hoc group’s work on streamlined MAP processes, including binding arbitration, will form an important protection against double taxation. 

Further action

RSM will be preparing a response to the PDD request. Clients with observations, or contributions, are invited to contact us and have them incorporated into a comprehensive submission. Please contact your local RSM tax adviser, or Craig Cooper.

In the meantime, businesses should be advancing their assessments of the likely impact of the BEPS measures to their existing business models.

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