Skip to content

RSM’s Daniel M. Berman on the OECD BEPS Multilateral Instrument

Robert Sledz  

· 8 minute read

Robert Sledz  

· 8 minute read

Daniel Berman is responsible for international and strategic projects for the national tax practice of RSM US LLP, for which he previously led the international tax practice for the firm’s northeast region.  He joined RSM in 2012 from the Boston University School of Law, where he was Director of the Graduate Tax Program and Professor of the Practice of Tax Law.  He previously practiced international tax law for 25 years in Washington, D.C. both in major law firms and with the Congressional Joint Committee on Taxation as Legislation Counsel and the U.S. Treasury Department as Deputy International Tax Counsel.  His experience includes tax planning and counseling involving international aspects of U.S. income tax law applicable to cross-border transactions, investment and structures, inbound and outbound, involving all areas of the globe for companies, individuals, non-profits and governments; managing foreign law issues and foreign counsel; tax controversies and litigation; development and interpretation of lax legislation; interpretation and development of tax treaties.

Mr. Berman answered the following questions for BEPS Global Currents on August 23, 2017 regarding the OECD BEPS Multilateral Instrument (MLI):

Q: The U.S. has decided not to sign the BEPS MLI for now. What impact may that have, if any, on U.S. tax treaties overall?

A: Not signing the MLI probably will have no significant impact on U.S. tax treaties. U.S. treaties won’t be directly affected, of course, The U.S. Treasury Department has already updated its model treaty to take into account the BEPS recommendations and OECD model treaty update, and as we know, apart from arbitration, the MLI is intended as an implementation rather than any modification or expansion of those developments.

I do not expect that other countries will be less willing to negotiate bilateral treaties and protocols with the United States because we do not offer them the MLI as a vehicle for treaty modification.

Q: Has the U.S. missed an opportunity to include mandatory binding arbitration in several of its tax treaties by not signing the MLI?

A: It would appear that the United States missed an opportunity to add binding arbitration to its tax treaties by not signing the MLI. However, binding arbitration is not an OECD “minimum standard” in the MLI, so even via the medium of the MLI, arbitration would have to be separately negotiated on a bilateral basis. Drafting and signing a protocol that includes nothing but the new OECD binding arbitration provision would be a simple task, so using the MLI rather than bilateral protocols to implement the results of the bilateral negotiations would not save much time or effort. And given that the United States does not want to adopt either the BEPS/MLI modifications to the Permanent Establishment provisions or a Limitation on Benefits provision that includes a Principal Purpose Test, the United States has strong reasons to decline to use the MLI as a tool to adopt mandatory arbitration.

So overall, I don’t think this should be viewed as a missed opportunity from the U.S. perspective.

Q: Will the PPT provisions in the MLI adopted by all signatories lead to additional tax disputes?

A: Yes, I think the PPT provisions in the MLI will lead to additional tax disputes. The reason that the United States developed a lengthy, complex Limitation on Benefits (LOB) provision 25 years ago and has used it (with further developments) in every tax treaty since then is in order to provide clear guidance to taxpayers as to what structures qualify and what structures do not. The U.S.-style LOB provision surely is complex, but the rules are intended to be studied, understood, and applied with a clear result. A PPT provides a significant amount of subjectivity, and therefore uncertainty, in the application of a treaty’s LOB rules. The U.S. Treasury Department agreed to one PPT in the 1997 U.S.-Italy tax treaty, as signed, but the PPT was rejected by the U.S. Senate in the ratification process precisely because of the anticipated uncertainty.

Additional tax disputes surely will result from the adoption of PPTs.

Q: The MLI will not directly amend the text of the Covered Tax Agreement, but instead will be applied alongside existing tax treaties, modifying their application. Do you think this approach complicates the interpretation of these treaties?

A: If all bilateral treaties were identical, or even if most tax treaties that follow the OECD model used the same language, this would be easy – the MLI would just specify new language to replace or supplement the existing treaty provisions, article by article and paragraph by paragraph. But tax treaties do not use identical language, so the MLI cannot simply insert the OECD’s new BEPS-compliant model provisions in place of pre-existing bilateral treaty text. The MLI layers new provisions on top of existing provisions, superseding previous provisions to the extent inconsistent. This means that applying the treaty will require reading the bilateral treaty that remains in effect and simultaneously considering how the applicable provisions of that treaty are modified by the MLI as applied to that specific bilateral treaty. This certainly is a complex process, which will be beyond the capability of many tax executives and tax advisors.

And the process will be even more complex because of language: The MLI now is available in two authentic languages, English and French. The OECD reportedly is working on a couple of additional languages, which may or may not be official. But the MLI in English, French, and perhaps Spanish and German would have to modify the application of treaties authentic in perhaps Azerbaijani and Turkish only. The OECD is not expected to issue pro forma amended texts of bilateral treaties. That will be left to the signatory countries and commercial third parties.

Q: A U.K. official said at the 2017 OECD Tax Conference in DC that his country intends to produce consolidated versions of U.K. tax treaties affected by the MLI. Do you know of any additional jurisdictions that intend to do the same?

A: I’m not aware of any other country’s intentions, but there should be consolidated versions of treaties – that’s the only way taxpayers will be able to apply the treaties modified by the MLI. By stepping out first, the U.K. would offer treaty language that might apply broadly to English-language treaty text based on the OECD model. Perhaps the U.K. would consult with other large, English-speaking countries such as India, Australia, Canada, and even the non-signatory United States. But the U.K.’s consolidated language will not be official unless agreed to, word-for-word, by the other party with respect to each bilateral treaty. However, taxpayers might be able to hold Her Majesty’s Revenue and Customs to the terms of its own published text.

Co-lingual groups might get together to adopt treaty-modified language and consolidated texts, although the same nominal language can differ in application. But treaty text translation and language comparison in the bilateral context already is a very complex process. It will be at least as challenging in a multilateral context.

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein.

RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Internal Revenue Service rules require us to inform you that this communication may be deemed a solicitation to provide tax services. This communication is being sent to individuals who have subscribed to receive it or who we believe would have an interest in the topics discussed. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit for more information regarding RSM US LLP and RSM International. RSM® and the RSM logo are registered trademarks of RSM International Association. The power of being understood® is a registered trademark of RSM US LLP.

© 2017 RSM US LLP. All Rights Reserved.

More answers