On 23 March 2021 the OECD published Arbitration Profiles for 30 jurisdictions that are applying the arbitration provisions in Part VI of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. The profiles include information on Australia, Canada, France, Germany, Japan, Italy, the Netherlands and Spain.
The convention, also known as the multilateral instrument or MLI, was drawn up as a measure to quickly implement the tax treaty related BEPS measures into bilateral tax treaties without the need for countries to engage in a full process of renegotiating each of their bilateral tax treaties.
The main parts of the MLI relate to treaty provisions for dealing with hybrid mismatches; preventing treaty abuse; combating avoidance of permanent establishment status; improving dispute resolution; and arbitration provisions.
Countries joining the convention set out the bilateral tax treaties that will be covered by the provisions of the convention and may also set out reservations in relation to parts of the treaty as permitted by various provisions in the MLI.
Arbitration
The provisions in relation to arbitration are set out in Part VI of the MLI. Countries have the option to include these provisions in their bilateral treaties if they choose to do so and if both parties to a treaty make this choice.
Where a bilateral tax treaty contains a provision on the mutual agreement procedure, allowing a taxpayer to present a case to the competent authority in relation to taxation not in accordance with the agreement, and the competent authorities of the contracting states cannot reach agreement within two years, unresolved issues may be submitted to arbitration if the taxpayer requests this in writing. The arbitration provision will generally be binding on the parties.
The MLI gives some flexibility in implementing the provision, for example a party may reserve the right to replace the two-year period for agreement by the competent authorities with a three-year period.
The MLI sets out provisions on the appointment of arbitrators and the type of arbitration process, which the parties to the bilateral treaty may amend if they wish. The MLI also includes a provision relating to the confidentiality of arbitration proceedings.
Profiles
The OECD has developed arbitration profiles to give further information to taxpayers on the way in which each jurisdiction is applying Part VI of the MLI. The jurisdictions may themselves provide publicly available clarifications on their position on arbitration under the MLI.
The OECD country profiles provide links to the competent authority agreements reached by each country choosing to apply the arbitration provisions of the MLI, settling how the provisions are to be applied. As the OECD is the depositary of the MLI it maintains the agreements and makes them publicly available.
The profiles list reservations made by the countries in relation to the scope of cases eligible for arbitration; and include any further clarifications that the countries choose to make publicly available in relation to their position on the MLI arbitration provisions.
