Now according to Law360, during an annual OECD forum in Paris, 68 countries officially signed the multilateral instrument, or MLI, which will allow them to close gaps in existing international tax rules that can give rise to treaty abuse and tax avoidance strategies. Another 8 countries also formally acknowledged on Wednesday that they will adopt the MLI.

The MLI does not replace the vast network of hundreds of existing bilateral tax treaties, but once ratified by individual countries' lawmaking bodies, it will enable a swift and efficient way for countries to amend the interpretation of these treaties, a negotiation process that could otherwise take a decade or more, so as to make clear that strategies to avoid paying taxes in multiple jurisdictions are not an intended use of these treaties.

 

However, the tax situations of multinational U.S. corporations could still be affected because anti-abuse rules are likely to automatically kick in in jurisdictions where these companies' foreign subsidiaries are making cross-border transactions outside the U.S., experts said.

Willem Bongaerts, a tax attorney and partner at Bird & Bird LLP in the Netherlands, said that these corporations should still review and possibly reform their current organizational structures if they want to continue receiving treaty protections they currently enjoy in the foreign countries.

"It could lead to an increase in overall effective tax rate, but very likely, what will happen is that multinationals will anticipate this and will do a reorganization and try to find the most tax optimal structure again," Bongaerts said.

 

 

Now, U.S. companies will have to ensure their offshore operations have a valid business purpose beyond a tax benefit or risk being denied treaty benefits under the MLI's Principal Purpose Test, Bongaerts said.