The International Tax Instrument with the Best of Intentions!

BLOG22nd May 2018

For some years now, the OECD have been on a drive to tackle what they call “Base Erosion and Profit Shifting”, or “BEPS.” This refers to strategies adopted by multinationals that exploit gaps or mismatches in tax rules to artificially shift profits to low or no-tax jurisdictions.   BEPS Action 15, the final of the OECD’s action plan, introduced the concept of a Multilateral Instrument (“MLI”).

The MLI will come in to force on 1 July 2018, and aims to provide certain minimum standards over the double tax treaty network which exists worldwide, in order to both counter BEPS, and improve the resolution of cross-border tax disputes. The MLI compliments more than 1,200 tax treaties and aims to close the gaps and mismatches that multinationals may have benefited from, to seek a more equitable tax position.

The application of the MLI to any treaty is complex, as it requires knowledge as to whether or not each country that is party to the treaty has ratified the MLI, and if they have, consideration is also required as to whether those particular countries have adopted any reservations to the standard MLI terms.

There is no doubt that the intentions of the MLI, to try and ensure that multinationals pay their ‘fair share’ of tax, are welcomed by the majority of international businesses. However, it is also clear that the necessary interpretation of the MLI, in addition to the interpretation of existing treaties, will in many cases significantly complicate the tax analysis of cross border trade.

For example, when reviewing a cross border transaction e.g. contract with a customer in an overseas jurisdiction, companies will not only be required to understand the double tax treaty and its implications, but additionally may be required to interpret any commentary from the MLI which may impact on the transaction.

For any further assistance or questions on the MLI, or your businesses wider international operations, please contact Andrew Shaw ( To find out more about Andrew and the International Tax team, please click here.