More countries join BEPS agreement to strengthen tax treaties

04/07/2018 News Team

The number of signatories on the base erosion and profit shifting (BEPS) Multilateral Convention has risen to 79, as ministers and senior officials from Kazakhstan, Peru and the United Arab Emirates have now signed. The number of covered jurisdictions is 81. These signatures come just before the convention enters into force on 1 July 2018 for five of the jurisdictions that signed last year.

These jurisdictions are Austria, the Isle of Man, Jersey, Poland and Slovenia. Serbia, Sweden and New Zealand follow closely behind and the convention will enter into force for them on 1 October 2018.

This convention updates the existing network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises and allows jurisdictions to integrate results from the OECD/G20 BEPS project into their existing networks of bilateral tax treaties. This delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to ‘disappear’ or be artificially shifted to low environments, where companies have little or no economic activity.

Pascal Saint-Amans, director of the OECD centre for tax policy and administration, said: “The new signatures and the imminent entry into force of this landmark agreement underlines governments’ commitment to update the international tax rules and ensure they are fit for purpose in the 21st Century.”

Treaty shopping is estimated to reduce the withholding effective tax rate from nearly eight percent to three percent, which generates significant revenue losses for developed and developing countries. Over 115 countries and jurisdictions are currently working in the inclusive framework to implement BEPS measures in their domestic legislation and bilateral tax treaties. However, the number of bilateral treaties makes updates to the treaty network on a bilateral basis time-consuming.

The convention, negotiated by more than 100 countries and jurisdictions under a mandate from G20 finance ministers and central bank governors, offers the opportunity to modify more than 3,000 existing bilateral tax treaties.

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