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26 January 2018 Six additional jurisdictions sign Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS On 24 January 2018, six additional jurisdictions (Barbados, Côte d'Ivoire, Jamaica, Malaysia, Panama and Tunisia) signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (the MLI) during a second signing ceremony which took place at the Organisation for Economic Co-operation and Development (OECD) Headquarters in Paris, in conjunction with a plenary session of the Inclusive Framework on BEPS.1 Four other jurisdictions (Algeria, Kazakhstan, Oman and Swaziland) expressed their intent to sign the MLI in the near future. At the time of signature, the six signatories submitted a list of their tax treaties in force that they would like to designate as Covered Tax Agreements (CTAs), i.e., treaties to be amended through the MLI. At this stage, it is expected that over 1,200 tax treaties will be modified based on matching of the specific provisions that jurisdictions wish to add or change within the CTAs nominated by signatories. Together with the list of CTAs, signatories also submitted a preliminary list of their reservations and notifications (MLI positions) in respect of the various provisions of the MLI. The definitive MLI positions for each jurisdiction will be provided upon the deposit of its instrument of ratification, acceptance or approval of the MLI. As part of the options contained in the MLI, jurisdictions may opt into mandatory binding arbitration, an element of BEPS Action 14 on dispute resolution. Of the six jurisdictions that signed the MLI, only Barbados opted in for mandatory binding arbitration. Furthermore, Poland also deposited its instrument of ratification, acceptance or approval of the MLI, becoming the fourth jurisdiction to do so – after Austria, the Isle of Man, and Jersey. The MLI will enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of deposit of the fifth instrument of ratification, acceptance or approval. In October 2015, the OECD released the final reports on the 15 action items of the BEPS Action Plan. The final reports contained recommendations that fall into different categories, with such recommendations ranging from minimum standards (which all parties agree to implement), reinforced international standards and common approaches. The MLI was developed and agreed in November 20162 by approximately 100 jurisdictions, including OECD member countries, G20 countries and other developed and developing countries. However, it is open for signature to any interested jurisdictions. On 7 June 2017, 68 jurisdictions3 signed the MLI during a signing ceremony hosted by the OECD in Paris.4 Although the MLI has been open for signature since 1 January 2017, June 2017 was the first time that countries signed the instrument. Four more jurisdictions, namely Cameroon, Curacao, Mauritius and Nigeria, signed the MLI after the first ceremony. Overall, the six new signatories of the MLI have opted to apply only a few of the non-minimum standard provisions. For example, only Malaysia chose to apply Article 3 on transparent entities. Likewise, only Jamaica chose to apply the new tie breaker rule (Article 4), the Anti-abuse rule for permanent establishments (PEs) situated in third jurisdictions (Article 10) and the saving clause (Article 11). With respect to the PE provisions, except for Barbados and Panama, all of the new signatories chose to apply the new language on agency PE (Article 12 of the MLI) and option A (i.e., the exception should only be available if the specific activity listed is of a preparatory or auxiliary character) of Article 13 on the PE specific activity exemptions together with the anti-fragmentation rule (Article 13.4). Regarding the anti-contract splitting rule (Article 14), only Cote d'Ivoire and Tunisia chose to apply this provision to their CTAs. Finally, in terms of the minimum standards provisions, all six jurisdictions opted to apply the Principal Purpose Test (PPT) (Article 7) and the new preamble language (Article 6). Signatories can supplement the PPT by selecting to also apply a simplified Limitation on Benefits (LOB) provision. None of the six jurisdictions, however, made this choice. Cote d'Ivoire, though, has opted for the asymmetrical application of a simplified LOB, and Jamaica for the symmetrical application of the simplified LOB. Only one jurisdiction (Cote d'Ivoire) has chosen to allow for the optional inclusion of a discretionary relief provision when treaty benefits are denied under the PPT. The expectation that 1,200 tax treaties would be modified as a result of the fact that 78 jurisdictions have now signed the MLI constitutes an unprecedented moment in international taxation. It is also a key milestone in the implementation of the treaty-based BEPS recommendations. The MLI will enter into force after five jurisdictions have deposited their instrument of ratification, acceptance or approval of the MLI. So far, four jurisdictions – Austria, the Isle of Man, Jersey and Poland – have ratified the Convention. With respect to specific bilateral tax treaties, the measures will only enter into effect after both parties to the treaty have deposited their instruments of ratification, acceptance or approval of the MLI and a specified time has passed. The specified time differs for different provisions. For example, for provisions relating to withholding taxes, the entry into force date is 1 January of the following year after the last party has notified of its ratification. As the MLI is likely to enter into force in 2018 and many countries are expected to ratify in 2018, this will mean that anti-treaty abuse provisions such as the PPT will become effective as of 2019. For other treaty provisions, tax treaties may be affected as early as sometime in 2018. Businesses are therefore encouraged to monitor the positions of all signatories, paying close attention to the positions of jurisdictions in which they operate. For more information on the MLI, visit ey.com/mli. 2 See EY Global Tax Alert, OECD releases multilateral instrument to implement treaty related BEPS measures on hybrid mismatch arrangements, treaty abuse, permanent establishment status and dispute resolution, dated 2 December 2016, for a more detailed analysis of the MLI related BEPS measures. 3 Andorra, Argentina, Armenia, Australia, Austria, Belgium, Bulgaria, Burkina Faso, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Gabon, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Monaco, Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, San Marino, Senegal, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and Uruguay. 4 See EY Global Tax Alert, 68 jurisdictions sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, dated 7 June 2017.
Document ID: 2018-5200 |
