Although the signing of the OECD’s MLI by 76 countries is considered ground-breaking among tax professionals, and more countries are expected to follow suit in the course of 2017, there are some key issues to be considered.

The implementation allows for jurisdictions to reserve against provisions they do not want and some large economies, such as the US, have not acceded to the MLI. As a result, multinationals could face confusion about which treaties are in effect when and where.

Glyn Fullelove, chair of the Chartered Institute of Taxation’s Technical Committee, said “As far as UK companies are concerned, many of the BEPS prevention measures have already been implemented into domestic law, or are expected to be implemented in the near future, and these domestic measures are likely to have a more significant impact than the Multilateral Convention.”

The UK has also indicated that it will not implement the convention where existing treaty provisions or domestic law already provides suitable protection against BEPS, Fullelove pointed out.

“UK companies should be aware that they will need to check that treaty provisions previously relied on are still in effect. “Particular sectors, such as fund management, may be more impacted than others,” Fullelove said.

Treaty compatibility

Binding arbitration is seen as a key way of ensuring effective mutual agreement procedure (MAP), said Rupert Shiers, a partner at Hogan Lovells in London. “Of the ones committed to binding arbitration many are expected to be EU states such as France and Germany. But EU states will also be committed to implement (by June 2019) the different model in the draft EU Directive on resolution of double taxation disputes. That makes it critical for sufficient other states to ratify this part of the MLI. Otherwise it risks never getting off the ground,” Shiers said.

Heather Self, a partner at Pinsent Masons in Manchester, said that a key part of the new pact is to use arbitration as a way to resolve international tax disputes. “We welcome this, but some will have concerns that not every country in the agreement has signed up for this part,” she said.

Another implication of the MLI could, ironically, be an increase in tax disputes, according to Self.

While the MLI will put “another nail in the coffin of complex tax avoidance structures exploited by some big businesses,” she also expects “an increase in international tax disputes as a result of the implementation of the measures recommended by the OECD, as countries will be implementing the recommendations in slightly different ways and at different speeds”.

“This is a particular issue for UK groups as the UK has been keen to be an early adopter of many recommendations."

Joel Cooper, co-head of international TP at DLA Piper in London, said the hope now is that the arbitration provision will prove to be a success and that the number of countries signing up to arbitration through the MLI (or bilaterally) will increase quickly, thereby improving the effectiveness of the MAP.