Baker Tilly Press Release
5 March 2019
Implementation of the Multilateral Instrument
The MLI offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the Base Erosion Profits Shifting (“BEPS”) project (initiated by the OECD) into their bilateral tax treaties by:
- modifying the application of thousands of bilateral tax treaties concluded to eliminate double taxation
- implementing agreed minimum standards to combat treaty abuse
- improving dispute resolution mechanisms
- providing flexibility to accommodate specific tax treaty policies
The instrument is quite flexible. At their own discretion, signatories may define which treaties will be covered and which specific provisions will apply.
The signatories to the MLI have three options on international tax treaty abuse:
- Option 1. Adopting only the principal purpose test (PPT)
- Option 2. Adopting the PPT test and the simplified limitation on benefits provision (Simplified LOB)
- Option 3. Adopting the detailed LOB in combination with the mechanism to address conduit financing
In June 2017, 68 countries, which included all EU countries, Australia, Japan, China and Russia but not the USA, signed the MLI. Subsequently, more countries signed the MLI, bringing the total number of countries to 87 as of 25 February 2019.
On 22 March 2018, the OECD announced that the MLI will enter into force on 1 July 2018, following the deposit of the ratification instrument by a fifth jurisdiction.
As of 25 February 2019, 21 countries amongst the 87 signatories ratified the MLI and deposited their instruments with the OECD. These countries are:
Australia, Austria, Finland, France, Guernsey, Ireland, the Isle of Man, Israel, Japan, Jersey, Lithuania, Malta, Monaco, New Zealand, Poland, Serbia, Singapore, Slovakia, Slovenia, Sweden and the UK)
For the Covered Tax Agreements (i.e. double tax treaties for which the MLI will apply) for the above countries the effective date will be as from 1 January 2019 with respect to withholding taxes and for purposes other than withholding taxes for taxable periods beginning on or after 1 January 2019.
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