The global tax treaty network has historically consisted of bilateral tax treaties. Updating a bilateral tax treaty network has been described, within the context of BEPS Action 15 (Developing a Multilateral Instrument), as “burdensome” and “time-consuming”. A recently published empirical study looked at how long it takes founding OECD member countries* to update their bilateral tax treaty network. Conclusion? On average, it takes 18.58 years before a tax treaty is updated.

Most existing bilateral tax treaties are based on the Model Tax Convention of the OECD. In an effort to introduce new policy directions and modernise international tax law rules, the Model Tax Convention has been updated, on average, every 4.5 years between 1963 and 2017. The publication of an update to the Model Tax Convention does not, however, have consequences for the bilateral tax treaty network. Any such update is only implemented into the bilateral tax treaty network, and thus reflected in tax treaty law, after the successful bilateral renegotiation of each individual tax treaty.

With a tax treaty network consisting of over 3,000 tax treaties, it is unsurprising that the OECD describes the updating of the network on a bilateral basis as “highly burdensome” and “time-consuming”. However, what has never been answered is exactly how time-consuming the updating of the bilateral tax treaty network actually is. The OECD estimates that updating the entire tax treaty network of a country would take “decades” and that updates to the OECD Model Tax Convention would take a generation to be implemented.

Following an empirical study on the tax treaties concluded by founding OECD member countries (∼ 1,600 tax treaties), and based on the assumption that each tax treaty would have been amended by 31 December 2019, the study concludes that it takes – on average – 18.58 years before a tax treaty concluded by a founding OECD member county is amended – or updated. In addition, the research shows that a majority of tax treaties – 61% – concluded by founding OECD member countries have not been amended after their conclusion. The study also shows that 24.5 years is the average time that has passed since the conclusion of these unamended tax treaties.

Based on these findings, it follows that updating bilateral tax treaties concluded by founding OECD member countries, by means of bilateral renegotiation, takes much longer than updating the OECD Model Tax Convention (18.58 years versus 4.5 years). The difference in average time between updates of, on the one hand, bilateral tax treaties and, on the other hand, the OECD Model Tax Convention confirms that the bilateral tax treaty network is not well-synchronised with the most recent version(s) of the OECD Model Tax Convention. It also confirms the OECD’s estimate that updating an entire tax treaty network would take “decades”.

With this in mind, multilateral implementation seems necessary to be able to keep the global tax treaty network up-to-date with recent OECD developments and initiatives. In fact, 29% of the tax treaties by the founding OECD member countries are Covered Tax Agreements under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This means that they are subject to changes implemented by means of the MLI. In comparison, only 5.5% of tax treaties concluded before the 2014 OECD Model Tax Convention update have been amended to reflect that update. As such, the MLI is swifter and more effective in implementing OECD Model Tax Convention updates than the bilateral negotiation alternative.

Taking into consideration the benefits of a multilateral instrument (such as the MLI) to implement multilaterally-agreed changes at the level of the OECD into the bilateral tax treaty network, it is unsurprising that the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has agreed to develop a multilateral instrument to facilitate the swift and consistent implementation of the subject to tax rule in Pillar Two in relevant bilateral tax treaties.

This blog post is based on an article that I wrote together with dr. D.M. Broekhuijsen and can be found here. Dr. Broekhuijsen works for the Dutch Tax Authorities and is an assistant professor at Leiden University. All views expressed in this blog are strictly his own.


* The founding OECD member countries are: Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.