Most Read Contributor in South Africa, September 2016
We are all aware of "base erosion and profit shifting"
or "BEPS". On 5 October 2015, the OECD released its final
reports in connection with its BEPS Action Plan including its final
report on Action 15 dealing with the development of a multilateral
instrument to modify bilateral tax treaties ("Final
Report"). The Final Report on Action 15 explores the
feasibility of developing a multilateral instrument that would have
the same effect as a simultaneous renegotiation of thousands of
bilateral tax treaties.
Action 15, more specifically, addresses the need to implement
the measures resulting from the work on the entire BEPS Action Plan
and specifically those measures that would require amendments to
the OECD Model Tax Convention and its Commentary as well as
bilateral tax treaties. These measures include the following:
the introduction of anti-treaty abuse provisions;
changes to the definition of a permanent establishment;
improvements to dispute resolution procedures; and
the introduction of anti-treaty abuse provisions in relation to
hybrid mismatch arrangements.
As it would take a substantial amount of time and resources to
amend the numerous bilateral tax treaties which are in place
worldwide, the OECD recommends a multilateral instrument which
would allow all existing bilateral tax treaties to be modified in a
synchronised way with respect to the measures resulting from the
work on the BEPS Action Plan.
The Final Report states that such a multilateral instrument is
desirous and will have numerous benefits including offering the
best opportunity for developing countries to reap the benefits of
the measures resulting from the work on the BEPS Action Plan,
promoting consistent international interpretation about the meaning
of the provisions of the multilateral instrument and ensuring a
level playing field and fairly shared tax burdens amongst the
The Final Report provides that the multilateral instrument will
be governed by international law, will be legally binding on the
state parties and will co-exist with bilateral tax treaties. To
respect state sovereignty, the state parties will be allowed to
commit to a core set of provisions as part of the multilateral
instrument, and have the possibility to opt-out, opt-in or choose
between alternative provisions with respect to other issues covered
by the instrument. The multilateral instrument will modify a
limited number of provisions common to most bilateral tax treaties
and will add new provisions specifically resulting from the BEPS
The envisaged content of the multilateral instrument is unknown
at this stage. The Final Report recommends that the content and
actual text of such instrument be discussed and negotiated at an
international conference. The terms of such instrument would then
be subject to the regular ratification procedures by each
With regard to South Africa, the Davis Tax Committee
("DTC") in its Interim Report on Action
15, recommended that such a multilateral instrument be supported,
provided that the amendments that it would bring are appropriate in
the context of South Africa's bilateral tax treaties. The DTC
also concluded that the legal framework for the multilateral
instrument already exists in the Convention on Mutual
Administrative Assistance in Tax Matters (the
"Convention"), which South Africa
ratified in 2013. The Convention, which regulates information
exchange between states, is also a multilateral instrument that
performs functions that would otherwise have required the
re-negotiation of thousands of bilateral tax treaties. The manner
of implementation of the Convention therefore, already appears to
be a success story for the OECD.
South Africa is part of the ad hoc group which will be
responsible for the development of the multilateral instrument and
the inaugural meeting of the group took place on 5 and 6 November
2015. If South Africa is also a signatory to such a
multilateral instruments, which will have the effect of amending
its existing bilateral tax treaties in line with the measures
resulting from the BEPS Action Plan, it is important that taxpayers
be provided with the opportunity to provide input and comments on
the amendments which are contained in such a multilateral
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
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