Australia's law to adopt the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) (Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 (the MLI Bill)) received Royal Assent on 24 August 2018.

The ratification documents are currently being prepared for government execution. Australia will then deposit its instrument of ratification together with the list of Australia's MLI reservations and notifications with the Organisation for Economic Co-operation and Development (OECD).

The MLI provides a mechanism for the swift implementation of the OECD Base Erosion and Profit Shifting (BEPS) tax treaty measures. The MLI applies alongside existing tax treaties, modifying their application to meet the BEPS requirements for treaties.

The MLI needs to be considered by international businesses in relation to the application of tax treaties to their businesses, structures and planning.

Varying impact for particular treaties

Australia's implementation of the MLI issued on 7 June 2017 is detailed in an EY Global Tax Alert. At that time, Australia listed 43 tax treaties between Australia and other jurisdictions that Australia wished to designate as Covered Tax Agreements (CTAs) to be amended through the MLI. As well, Australia submitted a provisional list of reservations and notifications (MLI positions) in respect of the various provisions of the MLI.

When CTAs enter into force under the MLI, changes will generally include:

• Requirement to satisfy the principal purpose test for eligibility for treaty benefits
• Changes to the permanent establishment article
• Capacity for a person to request Mutual Agreement Procedure (MAP) assistance to the competent authority of either Contracting State

Numerous countries are in the process of ratification of the MLI and various countries are seeking ratification by 30 September 2018 in order to facilitate an early entry into force.

Australia's tax treaty partners which have the MLI in force and are CTAs for Australia are Poland (from 1 July 2018) and New Zealand and the United Kingdom (from 1 October 2018). Additionally, Australia's tax treaty with Germany is already compliant with the MLI and therefore will not be subject to MLI adjustments.

Commencement dates

The MLI will enter into force for Australia's CTAs on the first day of the month following the expiration of a period of three calendar months from deposit of the instrument.

If Australia's instrument is ratified by 30 September, it is likely to enter into force on 1 January 2019. If so, the MLI will apply to Australia's CTAs, broadly:

• For MAP and arbitration purposes upon entry into force
• For direct taxes, to taxable periods starting on or after 1 July 2019
• For withholding taxes on 1 January 2019

The definitive MLI positions for each jurisdiction will depend on the parties' ratification of the MLI, and decisions in relation to their rights to reserve on certain parts of the MLI.

Next steps

With the MLI process now under way, the global tax treaty network will undergo significant changes.

Businesses using tax treaties in relation to their structuring or operations in Australia or with Australian parties should therefore monitor the MLI adoption and ratification process, and assess their impact on their tax treaty positions.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Australia), Sydney

• Sean Monahan
  sean.monahan@au.ey.com

Ernst & Young (Australia), Perth

• Andrew Nelson
  andrew.nelson@au.ey.com

Ernst & Young LLP, Australian Tax Desk, New York

• David Burns
  david.burns1@ey.com

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ATTACHMENT

PDF version of this Tax Alert