The problem with the application of the MLI-Beps

On June 7, Colombia, together with 67 other countries, signed the Multilateral Convention on the application of measures related to tax treaties to prevent base erosion and profit shifting or MLI-Beps, for its acronym in English. This Convention, a result of Action 15 of the OECD Beps plan, materialized the mandate received by such entity to modernize the network of existing treaties under the negotiation of a single Multilateral Instrument that would gather the rules to apply the existing treaties to avoid double taxation (hereinafter "CDI's").

The subscription of this Convention does not alter the text of any of the DTA's that the signatory countries have in force, but, in the event that both countries have reciprocally nominated each other so that such Convention would be applicable to them, and in the event that the standards selected to apply to such bilateral relationship coincide, these will be mandatory and will enter into force for both States.

Colombia, for example, nominated the nine countries with which it has a BIT in force, but did not do so, for example, with the United Kingdom, since such Convention (being so recent) already contains the essential standards contained in the MLI-Beps. On the contrary, Switzerland, a country with which Colombia has signed a BIT, did not nominate Colombia, reason for which said BIT will not be affected by the subscription of the MLI-Beps.

The conclusion and application of the MLI-Beps is undoubtedly pragmatic, since there is really no other way to renegotiate the rules of application of around 3,000 CDI's existing today in the world.  Such extreme pragmatism does not fail to raise doubts and concerns regarding the problems in their application. Throughout this article, two specific problems that may arise in the application of the Multilateral Instrument will be reviewed, namely, the framework of the MLI-Beps in light of the Vienna Convention on the Law of Treaties and the possible transgression of constitutional norms.

The framing of the MLI-Beps within the Vienna Convention on the Law of Treaties can be the source of many difficulties. One of them is the determination of whether the MLI-Beps is, with respect to the corresponding IDC, "a successive treaty relating to the same subject matter" and whether, if so, the rules contained in Article 30 of the Vienna Convention are applicable to it. Regarding this difficulty, it is possible to understand that the MLI-Beps (although it deals with international tax matters) is not a successive treaty on the same subject matter but a set of rules of application of the same, therefore article 30 of the Vienna Convention might not be applicable to it and, therefore, it could be understood that the MLI-Beps prevails over the CDI and not the other way around.

Likewise, the implementation of the MLI-Beps, being a Multilateral Convention, could (unfortunately) be declared unconstitutional for contravening the constitutional rules governing the management of international relations in Colombia. There are two reasons for this, which will be discussed below:

The first is that with the signing of the Multilateral Instrument, Colombia modified its entire network of IDC's, and this could be considered as inconvenient for the national interest (Articles 150 n. 16 and 226 of the National Constitution) for not having been discussed, with sufficient depth and not having made a deep assessment of the contingencies country by country. Although, within the framework of multilateral negotiations, there is the possibility that a country may sign with reservations, this could empower the Constitutional Court, by virtue of the provisions of paragraph of article 241 of the National Constitution, to order the return of the same to the executive so that the same (through a renegotiation) corrects this defect in the formation of the act.

The second is that although it is clear that the Vienna Convention is not part of the block of constitutionality, it is also clear that its content must be especially complied with by Colombia by virtue of the principle pacta sunt servanda, custom and the principles of international law governing the law of nations. In this regard, it should be noted that, in light of the provisions of Articles 40, 41 and 42 of the Vienna Convention, the amendment, modification and termination of multilateral treaties must be subject to certain special rules that are far from those applicable to BITs.

Although it was indicated above that the MLI-Beps does not alter the text of the IDC's, it is worth noting that the same, in light of the provisions of Article 1 of the MLI-Beps, does modify them. For this reason, the Constitutional Court could consider that the parameters for modifying the whole network of the BITs signed by Colombia have not been met, and that doing so violates Article 9 of the National Constitution (the recognition of the principles of international law accepted by Colombia) by applying to the corresponding BIT the rules of multilateral treaties, as well as Article 150 n. 16 for considering that - for the same reason - such Convention is not concluded on the basis of equity and national convenience.