The OECD’s BEPS Multilateral Instrument – Lessons for International Law Making


On June 7, 2017, 71 jurisdictions signed a convention on tax treaties with the aim of combatting base erosion and profit shifting (BEPS) abuses through so-called “treaty shopping.” The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS or Multilateral Instrument (MLI), as it is called, superimposes new legal standards for assessing and reporting tax on specifically named tax treaties between signatories, while respecting the freedom of signatories to maintain the underlying bilateral agreements reached.


The MLI marks a significant change on key tax issues such as where profits are based and how tax regimes are applied. Perhaps equally interesting is the process that the OECD used to devise the MLI. The process involved over 100 countries and progressed with surprising agility. Based on a 2013 action plan that included a multilateral instrument, the formal negotiations began in 2015 and concluded less than two years later with a full convention. What is more, the agreement’s real impact will be seen simultaneously over thousands of bilateral tax treaties.


The MLI’s ability to create substantial efficiency gains is due to the single ratification process. The process makes use of the “later in time” rule of Article 30(3) of the 1969 Vienna Convention on the Law of Treaties to modify existing treaties between ratifying jurisdictions without having to go through individual amendment proceedings. Starting on January 1, 2018, all identified tax treaties’ conflicting or absent provisions will be superseded by the MLI. However, the process does not replace the existing treaties nor prevent their continued modification on other non-conflicting provisions by the relevant parties.


While this principle of derogation is a familiar dynamic in national legislative processes, it is infrequently used in international law making. According to some commentators, the principle has not been squarely addressed in relation to the proliferation of international agreements on the identical subject matter, potentially triggering Article 30. The OECD’s use of the provision highlights new advantages, particularly the broad single negotiation process, which provides several efficiency gains. First, the relative simplicity of a single process versus thousands of renegotiations is both quicker and achievable. On a more substantive level, the broad inclusion process allows for the creation of an instrument with greater international support making it more likely to succeed. Similarly, the MLI creates an equal field with a synchronized implementation. This feature is key to its success because it gives businesses clear rules across the board and a single date to plan for any necessary changes. At the same time, it provides a guarantee that the result sought will be achieved because the provisions simultaneously apply to applicable treaties in jurisdictions. This strengthens the collective action against bad actors who may be tempted to create new incentives for tax evasion.


Two particularly important aspects of the MLI’s drafting are: (1) reliance on flexible language to modify existing treaties without expressly referring to the treaties being modified, and (2) freezes on specific modified provisions, but allowance for continued bilateral modification of other aspects to the object treaties. Both of these characteristics of the MLI work in tandem with the collective, synchronized approach, which allowed the OECD to coordinate such a massive overhaul of international tax law very quickly.


The experience can provide important lessons and inspiration for actors working on cross-cutting issues in transnational affairs, such as climate change, labour standards, human rights, and anti-corruption measures. All of these issues are often raised in bilateral and multilateral investment treaties. Although arriving at political agreements may be more challenging in these areas than BEPS, it is reasonable to imagine a future step of the Paris Accord to enact a simultaneous Article 30 derogation of emissions and environmental provisions of investment treaties.


This type of approach could benefit from many of the advantages discussed regarding the OECD’s MLI. While creating a new standalone environmental treaty is challenging, and enforcement mechanisms remain relatively unsophisticated, the more limited realm of investment treaties provides both an incentive for a sub-universal application and enforcement mechanisms with more bite. Like the MLI, assentation to such a treaty could be incentivized by including freezing provision that offer more stability and security for participating states and private actors affected by investment treaties. Finally, such an instrument could be drafted as a one-way ratchet to allow for increases in the future. In this way, parties could begin with a more modest agenda of a minimum floor and later seek more advanced standards.


In sum, the MLI’s successful use of Article 30 will spark continued creativity in international law making, particularly in its application to difficult issues of international concern.


Miguel is a second year J.D. student at Columbia Law School. He received his B.A. in International Relations and Economics from Tufts University. His past experience includes work with international organizations on issues of transparency and rule of law.