TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, December 19, 2018

Avi-Yonah & Xu: A Global Treaty Override — The New OECD Multilateral Tax Instrument

Reuven S. Avi-Yonah (Michigan) & Haiyan Xu (S.J.D. 2019, Michigan), A Global Treaty Override? The New OECD Multilateral Tax Instrument And Its Limits, 39 Mich. J. Int'l L. 156 (2018):

The new OECD Multilateral Instrument to amend tax treaties (MLI) is an important innovation in international law. Hitherto, international economic law was built primarily on bilateral treaties (e.g., tax treaties and BITs) or multilateral treaties (the WTO agreements). The problem is that in some areas, like tax and investment, multilateral treaties proved hard to negotiate, but only a multilateral treaty can be amended simultaneously by all its signatories.

The MLI provides an ingenious solution: A multilateral instrument that automatically amends all the bilateral treaties of its signatories. If the MLI succeeds, it can be a useful model in other areas, such as investment, where a multilateral agreement was not successful, but there is a growing consensus about the need to adjust the terms of BITs to address investor responsibilities and the definition of investment comprehensively.

Whether the MLI will succeed remains to be seen. A recent estimate has suggested that the US will not agree to anything except the arbitration provision, and other OECD members may agree to only a limited set of provisions. On the other hand, the MLI may prove more appealing to developing countries because it enhances source-based taxation and limits treaty shopping.

Even a limited MLI would be a step forward. The current tax reform proposals in the US pose a significant threat to the international tax regime Countries that wish to limit the damage would be wise to accede to the MLI this year and prevent a massive race to the bottom that could ensue if the US becomes (from the perspective of the rest of the world) a giant tax haven.

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