Edited book

Cahiers, International Fiscal Association


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Publication Details

Subtitle: A: Reconstructing the treaty network

Editor list: Duff, David G and Gutmann, Daniel

Edition name or number: 105

Publisher: IFA

Place: Rotterdam, Netherlands

Publication year: 2020

Title of series: Cahiers, International Fiscal Association

Number in series: 105

Volume number: A: 105

Start page: 1

End page: 912

Total number of pages: 912

ISBN: none, see Comments

URL: https://www.ifa.nl/cahiers


General report
David G. Duff (Canada)1
Daniel Gutmann (France)2
Summary and conclusions
Among the many actions in the OECD/G20 Base Erosion and Profit-Shifting (BEPS) project,
one of the most ambitious involved a number of modifications to tax treaties. Intended to
help neutralize the effects of hybrid mismatches, to prevent the granting of treaty benefits in
inappropriate circumstances, to prevent the artificial avoidance of permanent establishment
status, and to improve the resolution of international tax disputes, these modifications were
proposed in BEPS Action Plans addressing each of these areas, and subsequently incorporated
into the 2017 OECD Model Tax Convention and Commentaries.
Significantly, these modifications were also included in the Multilateral Convention
to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting, which was
designed to facilitate the swift and efficient amendment of thousands of bilateral tax treaties.
Described as “an historical turning point in the area of international taxation” that introduces
a third layer of rules for the taxation of cross-border taxation in addition to domestic tax law
and bilateral tax treaties, this multilateral instrument (MLI) modifies specific provisions
of Covered Tax Agreements (CTAs) that are designated by contracting jurisdictions to the
Although the MLI is intended to quickly re-shape or reconstruct the international tax
treaty network, the extent to which it accomplishes this objective depends on the number of
jurisdictions that enter into the Convention, the number of CTAs that each of these contracting
jurisdictions designates, the specific provisions of the MLI that each of these contracting
jurisdictions chooses to adopt, and the extent to which these choices match with those of
other contracting jurisdictions. At the same time, the impact of the BEPS project on the tax
treaty network may also be assessed by considering the extent to which the revised treaty
provisions in the MLI and the 2017 OECD Model Tax Convention have been incorporated into
bilateral and regional tax treaties that have been concluded in light of the BEPS project, even
if these treaties are not themselves subject to the MLI. In addition, the ultimate effectiveness
of these treaty revisions also depends on their practical implementation among contracting
Subject 1 of IFA in 2020 reviews the impact of the BEPS Actions and the MLI on the
structure and operation of the international tax treaty network, assessing the direct impact
of the MLI on tax treaties, the broader impact of the BEPS project on bilateral and regional
tax treaties that are not subject to the MLI, and the practical implementation of these revised
treaty provisions. This general report draws on 41 branch reports from around the world, as
well as OECD and EU reports.
Part One of the general report examines the impact of the BEPS Actions and the MLI
1 Professor of Law and Director of the Tax LLM program at the Peter A. Allard School of Law at the University of
British Columbia.
2 Professor of tax law at the Sorbonne Law School (University Paris-1); Partner at CMS Francis Lefebvre Avocats and
member of the steering committee, CMS Global Tax.
General report
on the international tax treaty network, both directly through CTAs subject to the MLI and
indirectly through tax treaties concluded in light of the BEPS project that are not themselves
subject to the MLI. It starts with a description of the main features of the BEPS project and
provides a detailed survey which shows that many countries had taken measures in response
to BEPS concerns even before the BEPS project started and before the MLI was concluded.
The direct impact of the MLI is assessed by the number of contracting jurisdictions and
of covered tax agreements. We also examine all the provisions adopted by the contracting
jurisdictions and we try to account for the great diversity of choices made by them, to the
extent made possible by the MLI. A detailed approach shows that the impact of the MLI is
significantly different depending on the provision at stake and the tax policy choices made
by every country.
In addition to the direct impact of the BEPS project on the tax treaty network through
provisions of CTAs that are modified by the MLI, the BEPS project has also had an impact on
the tax treaty network though revisions to tax treaties that have been concluded in light of
the BEPS project, even though these treaties are not subject to the MLI. We also note that
bilateral tax treaties negotiated since the MLI was signed, often include provisions which
the jurisdiction opted not to apply in the context of the MLI. We try to explain these results,
drawing on the material provided by the branch reports.
Part Two of the general report focuses on the actual steps taken by states in order to
implement the MLI and attempts to assess and predict to what extent the MLI has indeed
changed, or will change, the “law in action”. It starts with a synthesis of the most interesting
findings relating to the implementation procedures followed in the countries which signed
the MLI. It also looks at the choices made by tax administrations in terms of publication of
synthetized and/or consolidated versions of tax treaties following the MLI and shows the
practical difficulties connected to these choices.
Some interpretation issues relating to the MLI and the covered tax agreements are then
described, as well as interpretation issues relating to other tax treaties. In particular, we show
that the structural diversity of legal systems entails significant differences as to whether the
interpretation process bears on the MLI itself, or on covered tax agreements, or on domestic
legislation implementing the MLI. The complexity of interpretation issues also relates to the
hybrid nature of the MLI, which modifies other treaties and contains provisions of substantive
tax law. We then turn to the way jurisdictions address questions which have already become
“classical” in international tax literature, in particular regarding the impact of the legal status
of the Explanatory Statement and of the BEPS report on tax treaty interpretation.
A third chapter is on the impact of the BEPS Action Plan on tax planning. While it is not
disputed that that the BEPS Action Plan has significantly changed practice in the sense that
much greater attention is paid by practitioners to the risk incurred by taxpayers when setting
up of borderline tax planning schemes, it is more disputed whether the changes brought by
the MLI to tax treaties are more apparent than real. We explain this by looking at the impact
of the new treaty preamble, the principle purpose test and the LOB mechanism.
We conclude that with 94 signatories as of March 2020, and over 1,600 CTAs subject to
modification by the MLI, the OECD can rightly claim a considerable measure of success –
success that is properly measured not only by treaty provisions that are directly modified
by the MLI but also by the inclusion of these modifications in bilateral tax treaties that have
been concluded in light of the BEPS project.
At the same time, it is important to note that the impact of the MLI and the 2017 revisions
to the OECD Model has, so far at least, been limited primarily to the minimum standards on
treaty abuse and dispute resolution, and that the adoption of other provisions through the
Duff & Gutmann
MLI and bilateral tax treaties concluded in light of the BEPS project has been much more
It is also worth noting that the treaty modifications in the MLI and the 2007 revisions
to the OECD Model were not entirely unknown within the tax treaty network but were
anticipated in a number of practices and treaty provisions that preceded the BEPS project
altogether. As a result, while the inclusion of these provisions through the MLI or bilateral
tax treaties may represent a significant change for some jurisdictions, this is much less for
other jurisdictions. While the limited adoption of provisions beyond the minimum standards
thus far suggests that this process still has some way to go, further progress can be expected
as contracting jurisdictions to the MLI withdraw reservations to particular provisions and
subsequent bilateral tax treaties include provisions based on the 2017 OECD Model.
A final question is whether the MLI can be expected to remain as a permanent “third
layer” of international tax law, or whether it will fade into historical insignificance over time
as jurisdictions renegotiate bilateral tax treaties. Although the answer to this question may
depend on whether contracting jurisdictions view the MLI as an instrument to implement
future treaty-related modifications such as those designed to address challenges of the
digitised economy, branch reports suggest that many jurisdictions regard the MLI as a
temporary instrument whose role is solely to facilitate the swift and efficient modification
of the current tax treaty network, not to supplant or permanently supplement the bilateral
tax treaty network that remains the core international law dimension of international tax law.


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Last updated on 2020-14-07 at 11:15