Reservations and Compatibility Clauses in the Multilateral Instrument: Overcoming New Interpretative Challenges

Abstract: Adopted on November 2016, the Multilateral instrument for BEPS tax treaty measures (MLI) has come into play in the global tax treaty landscape. The MLI is a multilateral agreement that aims for a speedy implementation of the treaty measures agreed upon in the Base Erosion and Profit Shifting (BEPS) Project by allowing the modification of the bilateral double tax treaties (DTTs) without the need of individual negotiation of each treaty. In other words, it is a mass renegotiation of a 3000+ existing tax treaty network. In the following years, States enforcing the MLI will be confronted with new interpretative challenges arising from the interaction between both instruments, new taxation rules and different context. This investigation, focusing on the complex reservations system and compatibility clauses implemented by the MLI, provides a response on how the text of DTTs is actually modified by the MLI and its consequences on interpretation of DTTs in general.