On 3 May 2021 an opinion of interpretation and implementation was reached by a conference of the parties to the multilateral instrument (MLI) for inclusion in bilateral tax treaties of the tax treaty related provisions arising from the action plan on base erosion and profit shifting (BEPS).

The opinion notes that it is a matter for the parties to the MLI to determine issues of interpretation and implementation of the provisions of a Covered Tax Agreement as modified by the MLI. The issues should be settled in in line with the relevant provisions of the modified agreement. The contracting states should use the agreement’s mutual agreement procedure to endeavour to settle questions of interpretation and implementation of the provisions that were modified by the MLI.

In relation to provisions of the MLI itself, issues around the interpretation or implementation of the MLI may be addressed by a Conference of the Parties convened in accordance with the relevant provisions of the MLI.

The basic principle for the interpretation of the provisions of the MLI is based on the rule set out in Article 31(1) of the Vienna Convention on the Law of Treaties. The MLI should be interpreted in good faith in line with the ordinary meaning to be given to the terms of the treaty in their context and in the light of the purpose of the treaty. As a guiding principle, therefore, the MLI should be interpreted according to its object and purpose, which is to implement the tax treaty-related BEPS measures.

Issues relating to the interpretation and implementation of the tax treaty related BEPS measures themselves should be addressed in line with the policy objectives of the relevant BEPS measure. Apart from the arbitration provisions in Part VI of the MLI, the provisions in the MLI are intended to be identical in their effect to the measures recommended in the BEPS reports. The Commentary developed during the BEPS Project, which is now in the 2017 version of the OECD Model Tax Convention, has particular relevance for this.

The text of the Explanatory Statement related to Part VI of the MLI addresses both the substance of those provisions and their technical application to Covered Tax Agreements. The MLI modifies the application of existing tax treaties to implement the tax treaty-related BEPS measures. Where the old and new provisions are incompatible, the provisions of the MLI will prevail over the original provisions of the Covered Tax Agreements. The old and new provisions are considered to be incompatible if there is a conflict between the two provisions.