Korea signs multilateral treaty to prevent offshore tax erosion

The OECD estimates that multinational companies avoid paying Dollars 100-240 billion in tax each year by taking advantage of gaps and mismatches in tax rules to artificially shift profits to low or no-tax environments where they have little or no economic activity.

Singapore intends for the multilateral instrument to apply to DTAs with treaty partners that are members of the ad-hoc group, which would put its treaties in line with global standards and increase access to benefits, such as certainty and efficient dispute resolution mechanisms.

Ministers and high-level officials from 68 jurisdictions signed on June 7 a multilateral convention that will implement a series of tax treaty measures.

Under the new pact, countries have to state which provisions they sign up to and which they do not.

It will strengthen provisions to resolve treaty disputes, including mandatory binding arbitration, thereby reducing double taxation and increasing tax certainty.

The new convention, developed through negotiations involving more than 100 countries and jurisdictions, has the mandate of G20 finance ministers and central bank governors.

The Multilateral Convention aims at swift and consistent implementation of the treaty related BEPS measures.

By signing a new worldwide pact, Turkey has taken a key step forward to prevent tax avoidance and evasion by multinational enterprises, Deputy Prime Minister Mehmet Şimşek said on Thursday.

The Base erosion and profit shifting (BEPS) convention will be swiftly implemented to refurbish the existing bilateral treaties network as well as to fix the treaty loopholes.

"Other BEPS outcomes such as amendment of the definition of the term "Permanent Establishment" to plug unintended interpretation leading to fiscal evasion, prevention of double non-taxation of hybrid entities, time threshold for treaty benefits to dividend and capital gains transactions will be incorporated in the covered tax agreements where all contracting parties agree", it added.

The text of the convention, an explanatory statement and background information are available here. Instead, it will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.

The first modifications to bilateral tax treaties are expected to enter into effect in early 2018.

  • Zachary Reyes