OECD's Proposals for Comprehensive Global Reforms and Implementation BEPS Measures is Well Underway

Action 15 of the Action Plan on Base Erosion and Profit Shifting (BEPS) calling for the development of a multilateral instrument to modify bilateral tax treaties and for the implementation of measures was approved by the Committee of Fiscal Affairs and has been endorsed by G20 leaders, concluding that it was not only feasible but desirable and that further negotiations for the instrument should be assembled quickly.

The Ad Hoc Group which was created in May 2015 with the objective of developing the multilateral instrument to modify existing bilateral tax treaties is now 96 countries strong, all on a level footing and aims to finalise results and presents its multilateral instrument for approval by 31 December 2016.

A public consultation on the multilateral instrument will be held in Paris at an OECD Conference on 7 July 2016.

The BEPS project was originally launched by the OECE and G20 in order to tackle "base erosion and profit shifting" therefore preventing multinational enterprises from shifting profits from high to low tax jurisdictions. Revenue losses from BEPS, at a conservative estimate are at USD 100-240 billion per annum, or 4-10% of global corporate income tax revenues, (CIT).

The proposed measures include a new OECD treaty definition of a "Permanent Establishment" (PE) - under BEPS Action 7, whereby negotiation of contracts could create a taxable PE. "As a preliminary matter, it appears clear that the negotiation of the multilateral instrument should include ... the work to prevent the artificial avoidance of the PE standard under Action 7..." as conveyed in Action 15: A Mandate for the Development of a Multilateral Instrument on Tax Treaty Measures to Tackle BEPS.

Action 7 seeks to deter multinational firms in foreign tax-treaty jurisdictions from using PE's by significantly increasing taxation, unless businesses revise and restructure their operations or procedures, which will ultimately result in adhering to more stringent guidelines.

The OECDs current treaty provisions (and various tax jurisdictions including the UK), allows for a PE to be established if a non-resident company has a registered office or fixed place of business in a particular jurisdiction or a representative or agent to "conclude contracts" on its behalf in that jurisdiction, (referred to as the agency permanent establishment), unless the agent is economically and legally independent of the non-resident company.

In many cases many international firms have...