2. Key role of the BEPS MLI
46. Since the provisions of the BEPS MLI first started to take effect, in 2019, the BEPS MLI has rapidly strengthened the bilateral tax treaty network of jurisdictions that ratified it. The number of agreements between members of the Inclusive Framework that became compliant with the BEPS MLI increased more than tenfold (from 60 to over 650) between 2019 and 2021; in 2022, this number increased by another 30%, to exceed 850. As in previous years, the peer review continues to reveal an important difference in the progress made on implementing the minimum standard by jurisdictions that have ratified the BEPS MLI compared with other jurisdictions.
47. Over the past year, 13 jurisdictions that are members of the Inclusive Framework have ratified the BEPS MLI: Andorra, Bahrain, Belize, Bulgaria, Cameroon, China (People’s Republic of) (the instrument of approval also covering Hong Kong (China)), Romania, Senegal, the Seychelles, South Africa, Spain and Thailand. 1
48. On average, nearly 50% of the treaty networks of jurisdictions for which the BEPS MLI started to take effect as of 1 January 2022,2 are compliant with the minimum standard in 2022, as shown in the Table 2.1.
49. For the jurisdictions that ratified the BEPS MLI after October 2021,3 the relevant provisions of the BEPS MLI had generally not yet started to take effect for their agreements on 31 May 2022. This is because provisions of the BEPS MLI can generally only start to take effect for an agreement after a period of time that follows the latest of the dates on which the BEPS MLI enters into force for each of the partners to an agreement. This period could roughly amount to a year from the latest ratification.4
50. As observed in prior peer reviews, while the jurisdictions that ratified the BEPS MLI made good progress in the implementation of the minimum standard, those that did not sign or ratify the BEPS MLI made comparatively little progress, in general, in implementing the minimum standard. Only around 15% of the agreements concluded by those jurisdictions are compliant.
51. The 2022 peer review thus continues to show the importance of swift ratification of the BEPS MLI. All signatories to the BEPS MLI that have not yet ratified it are therefore encouraged to do so.
52. The OECD Secretariat has liaised with the signatories of the BEPS MLI that, at the time of the drafting of this report, had not yet ratified it and notes that Mexico is aiming to deposit its instrument of ratification of the BEPS MLI during the fourth quarter of 2022.
53. Throughout the 2022 peer review, gaps in the coverage of the BEPS MLI were identified. These gaps exist because the BEPS MLI is a flexible instrument that allows each signatory to decide which of its agreements it wishes to cover under the BEPS MLI. Thus, at the time of signature, signatories are required to deposit lists of agreements they want to modify. The BEPS MLI only modifies bilateral agreements listed by both treaty partners.
One-way agreements
54. Where an agreement has been listed under the BEPS MLI by only one of its treaty partners although both treaty partners have signed the BEPS MLI, the minimum standard would not be implemented in the agreement. The revised methodology has made it explicit that where both partners have signed the BEPS MLI, but only one has listed the agreement, listing the agreement would be interpreted as a request to implement the minimum standard. The parties would have an obligation to implement the minimum standard in the agreement and agree bilaterally on the method to be used.
55. The 2022 peer review reveals that about 160 bilateral agreements, concluded between pairs of signatories to the BEPS MLI that are members of the Inclusive Framework, would not be modified by the BEPS MLI because, at this stage, only one jurisdiction had listed the agreement under the BEPS MLI (“one-way agreements”).5
56. In some cases, the treaty partner that has not listed a “one-way agreement” to be covered under the BEPS MLI has formulated a plan to implement the minimum standard in that agreement by expanding its list of covered tax agreements under the BEPS MLI to include that agreement. In other cases, those “one-way agreements” have not been listed under the BEPS MLI because the treaty partner is pursuing bilateral renegotiations to implement the minimum standard. That treaty partner may also be intending to cover elements that go beyond the implementation of the minimum standard and other treaty-related BEPS measures.
Waiting agreements
57. The 2022 peer review reveals that there are about 240 bilateral agreements concluded between pairs of jurisdictions that are members of the Inclusive Framework where only one of them has signed the BEPS MLI (“waiting agreements”). For that reason, none of these agreements would, at this stage, be modified by the BEPS MLI. Nearly all these agreements would become covered under the BEPS MLI if the treaty partner that has not yet signed the BEPS MLI would do so and would list the agreement.
58. The OECD Secretariat has been liaising with some of the jurisdictions that were working towards signature of the BEPS MLI as part of their plan to implement the minimum standard (see Section 4 below). Those included Antigua and Barbuda, Benin, Eswatini, Mauritania and Montenegro, which between them have around 40 waiting agreements that would become covered agreements under the BEPS MLI following their signatures.
Notes
← 1. One other jurisdiction that is not a member of the Inclusive Framework (Lesotho*) also ratified the BEPS MLI in the past year.
← 2. The BEPS MLI generally started to take effect as of 1 January 2022, with respect to agreements of jurisdictions that ratified it before the end of September 2021.
← 3. Bahrain, Belize, Bulgaria, Cameroon, China (People’s Republic of) (with the instrument of approval also covering Hong Kong (China)), Romania, Senegal, the Seychelles, South Africa and Thailand (as well as Lesotho*) deposited their instruments of ratification of the BEPS MLI after October 2021.
← 4. Article 35 of the BEPS MLI provides for the rules on its entry into effect and divides modifications into two categories based on the type of taxation to which they apply. In general, under Article 35(1)(a), with respect to taxes withheld at source on amounts paid or credited to non-residents, the BEPS MLI enters into effect on or after the first day of the next calendar year that begins on or after the latest of the dates on which the Convention enters into force for each of the Contracting Jurisdictions to a Covered Tax Agreement. As for all the other taxes levied by a jurisdiction, Article 35(1)(b) provides that the BEPS MLI generally enters into effect with respect to taxable periods beginning on or after the expiration of a period of six calendar months from the latest of the dates on which the Convention enters into force for each of the Contracting Jurisdictions to a Covered Tax Agreement.
← 5. The BEPS MLI can only modify bilateral agreements that have been listed by both treaty partners under the BEPS MLI.