Major Treaty Boosts Power to Resolve Global Tax Disputes



Multinational employers, employees, and other taxpayers faced with a complex web of double-taxation agreements across the globe may find some relief thanks to a recent multilateral treaty that amplifies their role in the international arena.

With more businesses than ever going global, the volume and complexity of tax disputes involving multiple countries has continued to grow at a pace that has necessitated widespread updates to existing law to keep up with the global tax landscape. Although talk of multilateral treaties on double taxation issues can be traced back decades, the scale and scope of such treaties has grown to accommodate this burgeoning demand. 

In June 2017, the Organisation for Economic Co-operation and Development (OECD) sought to address mounting double-taxation disputes through an unprecedented multilateral tax super treaty that was signed by about 70 countries. In place of bilateral treaties that often take years to negotiate, ratify, and enter into force, the multilateral treaty is the first of its kind intended to make sweeping reforms aimed at closing gaps in existing international tax rules by transposing changes into bilateral tax treaties across the globe.

To mitigate the possibility of double taxation and ensure compliance with rules governing tax evasion, payroll professionals must be able to effectively navigate international tax systems, and the OECD’s super treaty is becoming a big part of that.

The OECD Model Convention has served as the basis for many bilateral double-taxation agreements. Unlike the model convention, which allows employers and other taxpayers to present double-taxation disputes to an authority in their country of residence, the OECD’s multilateral treaty opens the door for taxpayers to present disputes to authorities in either country that is party to the dispute irrespective of the remedies available under domestic law.

Because the tax authority in a taxpayer’s country of residence is required to merely endeavor to resolve a dispute but does not have an obligation to do so, a taxpayer’s options for further channels of resolution are limited under the OECD Model Convention. 

While the OECD’s multilateral treaty was intended to offer greater certainty on issues for which taxpayers and countries are unable to reach agreement, the optional nature of some provisions in the treaty leaves many details of the treaty’s implementation unknown as countries undergo the process of incorporating new rules into their national laws and existing bilateral treaties. Because the OECD does not impose a single model on across the globe, countries with different internal tax regulation systems are able to pick and choose which provisions are relevant, then seek external solutions to specific issues that are not adequately addressed by the treaty. 

Updated dispute resolution rules are optional under the OECD’s multilateral treaty, with 25 countries signing on to adopt the provisions thus far. A segment of the treaty also states that countries can make free-form reservations within provisions related to dispute resolution. Nevertheless, the overall process offers what is hoped to be a more efficient way to accomplish a major overhaul to the international tax system as it relates to double taxation and tax evasion.

As super treaty signatories undergo the process of incorporating the new rules and more countries sign on, it is incumbent upon employers to keep abreast of imminent changes to double taxation across the globe.


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