This Alert has been revised from its original release on 5 October 2021.

Executive summary

On 28 September 2021, Spain deposited its instrument of ratification of the Multilateral Convention to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting (the MLI or the Convention) with the Organisation for Economic Co-operation and Development (OECD).

The provisions included in the MLI will have a significant impact on the vast majority of the treaties in the Spanish tax treaty network, as detailed in EY Global Tax Alert, Spain signs Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, dated 15 June 2017.

Detailed discussion

Background

On 7 June 2017, Spain signed the MLI as one of the 68 early adopters of the Convention. Since then, over four years have elapsed, and two congress attempts were undertaken to obtain the relevant ratification authorization to pass the MLI into Spanish domestic law. During the legislative process, Spain changed some of its original positions to the Convention as detailed below.

On 28 September 2021, following congressional approval, Spain deposited its instrument of ratification for the Convention with the OECD. The instrument will enter into force on 1 January 2022 for Spain.

With the Spanish acceptance, approximately two-thirds (67 out of 96) of the signing jurisdictions have already ratified the Convention, paving the road for a shift in the international tax standards towards base erosion and profit shifting (BEPS) avoidance.

Spanish final positions on the MLI

At the time of deposit of the instrument of ratification, Spain confirmed its final MLI positions. The main changes with respect to the original positions, detailed in the Alert referenced above, are the following:

Additions and removals to the specific provisions applicable to the Covered Tax Agreements (CTAs)

• Macedonia has been added, for purposes of article 6 (6) of the MLI, as a jurisdiction for which the agreement does not contain a preamble which expresses the desire to further develop the economic relationship and to enhance co-operation in tax matters.
• United Arab Emirates, Greece and Turkey have been added to article 7(17)(a) of the MLI on Treaty Abuse, to replace provisions currently existing.
• Qatar has been added to article 8(4) of the MLI for the purposes of the position for dividend transfer tax.
• Canada and New Zealand have been excluded from the application of article 17 of the MLI, that requires an adjustment where the other treaty party makes a transfer pricing adjustment because the agreements applicable to them already contain an equivalent provision. Conversely, Egypt, Iran and Vietnam have been removed from the exclusion list and, therefore, article 17 of the MLI will apply to the agreements between these jurisdictions and Spain.

Amendment of the reservations on the scope of arbitration

• A number of amendments to the reservations on the scope of arbitration have been included in the final position.

Entry into force

The MLI will enter into force in Spain on the first day of the month following the expiration of a period of three months beginning on the date of the deposit by Spain of its instrument of approval.

To the extent that the Spanish deposit took place on 28 September 2021, the MLI will come into force on 1 January 2022.

Since Spain made a reservation pursuant to Article 35(7)(a), Spain shall notify the confirmation of the completion of its internal procedures simultaneously to the Depositary and the other Contracting Jurisdiction(s) to which the notification relates. As of the date of issuance of this Alert, this event has not been made publicly available. The date of effects will need to factor in such date of notification of confirmation of completion of Spanish internal approval procedures.

In any event, the provisions of this Convention will have effect in each Contracting Jurisdiction with respect to a CTA:

• With respect to taxes withheld at source on amounts paid or credited to nonresidents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after 30 days after the date of receipt by the Depositary of the latest notification by each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific CTA.
• With respect to all other taxes levied by the Contracting Jurisdiction at source, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of six calendar months from the 30 days after the date of receipt by the Depositary of the latest notification by each Contracting Jurisdiction making the reservation described in paragraph 7 of article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific CTA.

Implications

The provisions included in the MLI may have a significant impact for multinational groups with a Spanish presence. International groups should review their structures to anticipate the impact that these provisions could have on their current and backlog transactions.

In particular, a number of CTAs will be amended to include anti-abuse provisions, so existing structures and arrangements should be carefully reviewed.

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

Ernst & Young Abogados, Madrid

• Araceli Sáenz de Navarrete | araceli.saenzdenavarretecrespo@es.ey.com
• Tatiana de Cubas Buenaventura | tatianade.cubasbuenaventura@es.ey.com
• Castor Garate Mutiloa | castor.garatemutiloa@es.ey.com
• Isabel Hidalgo Galache | isabel.hidalgogalache@es.ey.com

Ernst & Young LLP (United States), Spanish Tax Desk, New York

• Jose A. (Jano) Bustos | joseantonio.bustos@ey.com
• Andrés Carracedo | andres.carracedo.insua1@ey.com