June 6, 2022
Spain deposits notifications of completion of its internal procedures for entry into effect of the MLI
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) with the Organisation for Economic Co-operation and Development (OECD), which entered into force for Spain as from 1 January 2022.
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.
Spain has now formally made the relevant notifications with respect to 50 Covered Tax Agreements (CTAs) (out of the 88 CTAs), following the reservation made pursuant to Article 35(7)(a), effective 1 June 2022.
On 7 June 2017, Spain signed the MLI as one of the 68 early adopters of the MLI. On 28 September 2021, following congressional approval, Spain deposited its instrument of ratification for the MLI with the OECD and on 22 December 2021, the instrument of ratification was published in the Spanish Official Gazette finalizing all the internal procedures for the MLI to enter into force as from 1 January 2022.
Since Spain made a reservation pursuant to Article 35(7)(a), it must notify the confirmation of the completion of its internal procedures simultaneously to the Depositary and the other Contracting Jurisdiction(s) for the MLI to become effective with respect to each specific CTA.
In the event that the other party to a CTA has made the same reservation, the MLI will only have effect on that CTA after the OECD, as Depositary, has received the latest notification by each party to that CTA and certain time has elapsed, as detailed below.
Spain has now formally made the relevant notifications with respect to 50 of its 88 CTAs,1 effective 1 June 2022. If the notifications on the side of the other jurisdiction are completed (if required), the provisions for the MLI to become effective between Spain and the relevant counterparty jurisdictions will begin.
In this context, the provisions of the MLI will generally have effect in each Contracting Jurisdiction with respect to a CTA:
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 the MLI with respect to that specific CTA.
This is from 1 January 2023 where all relevant notifications are made by 1 December 2022
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 the MLI with respect to that specific CTA.
Where the required notifications have been made on 1 June 2022, it would be in effect for the taxes levied in taxable periods beginning on or after 1 January 2023.
Other provisions within the MLI (namely, those governing mutual agreement procedures or arbitration) have specific rules of entry into effect.
Spain has released synthesized texts (i.e., single document for each CTA containing the text of the CTA and its amendments by the MLI and information on the dates on which the provisions of the MLI have effect) on 46 out of the 50 CTAs to which Spain has made the relevant notifications pursuant to Article 35(7)(b). These synthesized texts are not legally binding but are useful tools that provide clarity and transparency for the application of the MLI in Spanish CTAs.
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 past transactions.
It is important to review the positions of the jurisdictions indicated above to verify whether they have opted for the special reservation and, if so, to verify for entry into force if the notifications have already been made by those jurisdictions.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Abogados, Madrid
Ernst & Young LLP (United States), Spanish Tax Desk, New York