Upload
others
View
16
Download
0
Embed Size (px)
Citation preview
www.dlapiper.com 0 17 October 2018
17 October 2018
MULTILATERAL INSTRUMENT
Joel Cooper and Shee Boon Law
www.dlapiper.com 1 17 October 2018
Agenda Presenters
Joel Cooper contact card
Shee Boon Law
Head of Knowledge
T: +31 (0) 20 541 92 59
Joel Cooper
Partner, Co-Head International
Transfer Pricing
T: +44 (0)20 7796 6929
1 Current Status & Framework
2
Optional Provisions –
Specific Treaty Anti-Abuse Rules 3
Minimum Standards –
General Anti-Treaty Shopping and MAP
4 Key Takeaways
Current Status & Framework 1
www.dlapiper.com 3 17 October 2018
Current Status (as at 1 October 2018)
MLI has already entered into force following fifth ratification by Slovenia
Austria, Isle of Man, Jersey, Poland and Slovenia (1 July 2018)
New Zealand, Serbia, Sweden, United Kingdom (1 October 2018)
Australia, France, Israel, Japan, Lithuania, Slovak Republic (1 January 2019)
Multilateral convention
negotiated by over
100 countries
Signing ceremony
7 June 2017
in Paris
84 countries signed
6 more countries expected to sign
www.dlapiper.com 4 17 October 2018
Andorra China PRC Finland Ireland Lithuania Panama Slovak Republic
Argentina Colombia France Isle of Man Luxembourg Peru Slovenia
Armenia Costa Rica Gabon Israel Malaysia Poland South Africa
Australia Cote d'Ivoire Georgia Italy Malta Portugal Spain
Austria Croatia Germany Jamaica Mauritius Romania Sweden
Barbados Curacao Greece Japan Mexico Russia Switzerland
Belgium Cyprus Guernsey Jersey Monaco San Marino Tunisia
Bulgaria Czech
Republic
Hong Kong Kazakhstan Netherlands Saudi Arabia Turkey
Burkina
Faso
Denmark Hungary Korea New Zealand Senegal Ukraine
Cameroon Egypt Iceland Kuwait Nigeria Serbia United Arab Emirates
Canada Estonia India Latvia Norway Seychelles United Kingdom
Chile Fiji Indonesia Liechtenstein Pakistan Singapore Uruguay
Current MLI Signatories
www.dlapiper.com 5 17 October 2018
A Survivor's Guide Some Tips
Review structures where access to treaty benefits are critical
Are your holding/financing/licensing and principal companies located in a country that
has signed up to the MLI?
Remember
How many treaties are covered?
What are their positions on optional provisions?
MLI only applies if both parties to a bilateral treaty adopt it as a covered tax
agreement
But time to act is now, not later!
Withholding tax, capital gains, permanent establishments
Specific structures that rely on other treaty benefits e.g. double tax reliefs, tax
sparing credits, non-discrimination, etc.
www.dlapiper.com 6 17 October 2018
MLI Minimum Standards and Optional Provisions
Treaty anti-abuse rules (LOB
and/or PPT)
Resolving treaty disputes in a
timely, effective and efficient
manner
Tighter PE rules
Agency PE
Anti-fragmentation
Mandatory arbitration
Other specific anti-avoidance
Minimum
standards
Optional
provisions
Multilateral Convention
to Implement Tax Treaty
Related Measures to
Prevent Base Erosion and
Profit Shifting
MLI Minimum Standards 2
www.dlapiper.com 8 17 October 2018
General Treaty Anti-Abuse Rules
Article 6 of the MLI
Article 6 (1) specifies intention of treaties is to eliminate double taxation without creating
opportunities for non-taxation, including through treaty shopping
Article 6 (3) provides an option to modify preamble of treaties (enhance economic relationship and
cooperation in tax matters)
Article 7 of the MLI
Article 7 (1) contains the principal purpose test (PPT)
Article 7 (4) optional provision for competent authority discretion to grant treaty benefits
Article 7 (6) election to apply simplified limitation on benefits (SLoB) clauses
Impact of MLI varies
Add new provisions
Replace existing/similar provisions
Operate alongside existing/similar provisions
www.dlapiper.com 9 17 October 2018
Treaty Anti-Abuse Rules – A Snapshot
Link to country positions here
Provisions Australia Austria France Japan New
Zealand Sweden UK
Number of
Treaties
Covered
42 38 91 35 37 64 121
Article 7
(1) - PPT Yes Yes Yes Yes Yes Yes Yes
Article 7
(4) CA
discretion
Yes No No No Yes No Yes
Article 7
(6) –
Simplified
LOB
No No No No No No No
Some
examples
Australia – United Kingdom (Art. 7(1) replaces Articles 10(7), 11(9), 12 (7) and 20(5));
Japan – United Kingdom (Art. 7(1) replaces Articles 10(10), 11(7), 12 (6) and 21(5)); etc.
Article 7(4) added to UK-New Zealand-Australia
Provisions Australia Austria France Japan New
Zealand Sweden UK
www.dlapiper.com 10 17 October 2018
PPT and SLoB: Election Mismatches
Slovak Republic has adopted PPT under Art. 7(1) and SLoB under Art. 7(6), which
creates asymmetrical adoption in respect of SLoB with many treaty partners
Further notifications needed in this case to determine the final outcomes on a
bilateral basis:
Scenario Outcome
Default SLoB does not apply; PPT alone applies symmetrically
Agreement of treaty
partner
(para. 7(a))
SLoB applies symmetrically under the treaty despite non-election
by the other state
Agreement of treaty
partner
(para. 7(b))
SLoB applies asymmetrically – applicable only in Slovak Republic
but not in the other state.
Art. 7(16), where no
agreement under
paragraph 7(a) or 7(b)
Slovak Republic may reserve the right for the entirety of Article 7
not to apply to a bilateral treaty but the treaty partners must
reach a mutually satisfactory agreement to implement the
minimum standard.
Scenario Outcome
www.dlapiper.com 11 17 October 2018
Principal Purpose Test
What is a benefit?
What is an arrangement or
transaction?
Notwithstanding any provisions of a Covered Tax Agreement, a benefit under the
Covered Tax Agreement shall not be granted in respect of an item of income or capital
if it is reasonable to conclude, having regard to all relevant facts and circumstances,
that obtaining that benefit was one of the principal purposes of any arrangement or
transaction that resulted directly or indirectly in that benefit, unless it is established
that granting that benefit in these circumstances would be in accordance with the
object and purpose of the relevant provisions of the Covered Tax Agreement.
that resulted directly or indirectly in that benefit
www.dlapiper.com 12 17 October 2018
Potential Impact on Holding/Financing/IP Structures
Affiliates (ROW)
Hold Co
(Various Locations)
Top Co
Dividends/interest/royalties
Dividends/interest/royalties
Access to treaty for reduction/exemption of
withholding taxes, capital gains exemption and other
benefits may be subject to PPT
Adoption of PPT
Different requirements for different countries?
One of the principal purposes in the context of that
country only?
Applicable rules in the countries of Affiliates are
relevant
Experienced management, knowledgeable directors,
functionally relevant substance, commercial non-tax
reasons
OECD Guidelines in the 2017 Commentary
Substance will need to be considered on a case by case
basis
www.dlapiper.com 13 17 October 2018
Simplified Limitation-on-Benefits Provision
Limited benefits unless a
qualified person
Individuals, Contracting
States, Listed companies
and entities and Other
specific inclusions
Active conduct of trade
or business Equivalent beneficiary
Competent authority
discretionary relief
www.dlapiper.com 14 17 October 2018
Mutual Agreement Procedure
Minimum standards on dispute resolution
Article 16 of the MLI
– MAP can be invoked for 'taxation not in
accordance with' the treaty in either contracting
states
Presentation can be made within 3 years of
notification of 'taxation not in accordance' with the
treaty
Agreement under MAP shall be implemented
notwithstanding domestic time limit
MAP can be invoked to resolve difficulties or doubts
in interpretation and application of tax treaties
MLI Optional Provisions 3
www.dlapiper.com 16 17 October 2018
Limitation on hybrid entities
Limitation on dual resident entities
Dividend transfer
transactions
Gains from the sale of immovable property entities
Anti-abuse rule for
third state branch
structure
Artificial avoidance
of PE
Other Optional Anti-Abuse Provisions
Application only if both
parties to a tax treaty
adopt the rule
Existing rules that are
more stringent can be
preserved
www.dlapiper.com 17 17 October 2018
Optional Provisions – A Snapshot
Provisions Australia Austria France Japan New
Zealand Sweden UK
Number of
CTAs 42 38 91 35 37 64 121
Hybrid Entity Yes No No Yes Yes No Yes
Dual
Resident Yes No No Yes Yes No Yes
Dividend
Transfer
Transactions
Yes No Yes No Yes No No
Real Estate
Entities
Yes,
holding
period only
No Yes, including
Art. 9(4)
Yes,
including
Art. 9(4)
Yes, including
Art. 9(4) No No
Third state
PE No Yes No Yes (??) Yes No No
Link to country positions here
Provisions Australia Austria France Japan New
Zealand Sweden UK
www.dlapiper.com 18 17 October 2018
Anti-hybrid Rules
For the purposes of a Covered Tax Agreement, income derived by or through an entity or
arrangement that is treated as wholly or partly fiscally transparent under the tax law of either
Contracting Jurisdiction shall be considered to be income of a resident of a Contracting Jurisdiction
but only to the extent that the income is treated, for purposes of taxation by that Contracting
Jurisdiction, as the income of a resident of that Contracting Jurisdiction.
Country H
Country S Affiliates
Fiscally transparent
Participants in Country H may rely on the treaty if
income is treated as their income
Country S would not give relief to fiscally
transparent entity in Country H Interest/royalties
www.dlapiper.com 19 17 October 2018
Dual Resident Entities
Affiliates (ROW)
Dual Resident Co
Top Co
Interest/royalties
Dividends/interest/royalties
Source countries may adopt rules to deny treaty benefits under
MLI
A dual resident entity and the countries could not
agree where the entity is resident under a mutual
agreement procedure
Treaty benefits are denied under Article 4 when recipient of
income is:
Use of MAP
Effects on domestic law when there is no tie-break
Watch out for:
www.dlapiper.com 20 17 October 2018
Real Estate Company or Entity
Company or
Other Entity
Hold Co
Real
Estate
Sale of share/interest
Countries where the real estate is located may adopt MLI
provision to retain the right to tax capital gains from the
disposal of shares in a company or participation rights in an
entity
Article 9 (1) of the MLI extends existing treaty rules to allow
situs state to tax capital gains when:
Value of real estate meets the requisite threshold at
any time during the 365 days preceding the sale
The entity is another entity such as a partnership or
a trust
Article 9(4) adds the real estate entity provision to existing
treaties that do not currently have one
www.dlapiper.com 21 17 October 2018
Example Real Estate Fund Structuring
Real Estate
Fund
R Co
B Co A Co C Co
Hold Co
Real Estate Real Estate Real Estate
www.dlapiper.com 22 17 October 2018
Dividend Transfer Transactions
X Shares
B Co
X Shares
A Co
65% 5%
Sale and repurchase around dividend dates
Dividends, subject to reduced treaty
withholding rate...
Countries where the company distributing the dividends is
located may adopt MLI to deny a reduction in, or an
exemption from, dividend withholding taxes under a tax treaty
Treaty benefits are denied under Article 8 of MLI when:
Ownership conditions are not met throughout a
365 day period that includes the day of the payment
of the dividends
www.dlapiper.com 23 17 October 2018
Third State PE
Affiliates (ROW)
Head Office Co PE
Interest/royalties
Countries where the affiliates are located may adopt rules to
deny treaty benefits under MLI
Treaty benefits are denied under Article 10 (primarily for
passive income) when the recipient of income
Has a PE in a third state and the income is
attributable to the PE; and
The attributed income is exempt from tax in the
Head office Co
Tax in the third state (ie on the PE) is less than 60
per cent of the tax in the country of the Head
office Co
www.dlapiper.com 24 17 October 2018
New PE Concepts Examples of Bilateral Positions
Agency PE
(Article 12 MLI)
Netherlands (NL-Egypt; NL-France; NL-India; NL-Japan; NL-New Zealand; NL-Romania; NL-
Russia; NL-Slovak Republic)
Spain (Spain-Chile; Spain-Argentina; Spain-Uruguay)
Preparatory/Auxiliary
(Article 13(2) or 13 (3))
Belgium (Belgium-France)
Luxembourg (Lux-France; Lux-Lithuania)
Netherlands (NL-Egypt; NL-Germany; NL-India; NL-Italy; NL-Japan; NL-New Zealand; NL-
Romania; NL-Russia; NL-Slovak Republic; NL-South Africa)
Singapore (Singapore-France)
Spain (Spain-Argentina; Spain-Uruguay)
Anti-Fragmentation
(Article 13(4))
Belgium (Belgium-Italy; Belgium-Egypt; Belgium-France; Belgium-Spain)
Netherlands (NL-Egypt; NL-France; NL-India; NL-Italy; NL-Japan; NL-New Zealand; NL-
Romania; NL-Portugal; NL-Russia; NL-Slovak Republic; NL-South Africa)
Spain (Spain-Chile; Spain-Argentina; Spain-Portugal; Spain-Uruguay)
United Kingdom (UK-Australia; UK-Belgium; UK-Chile; UK-Egypt; UK-France; UK-India;
UK-Indonesia; UK-Israel; UK-Italy; UK-Japan; UK-Malaysia; UK-Mexico; UK-New Zealand;
UK-Portugal)
Avoidance of PE – Selected Positions
New PE Concepts Examples of Bilateral Positions
www.dlapiper.com 25 17 October 2018
Specific Activity Exception – Warehouse PE
Foreign enterprise
Warehouse Customer
Online sales
Delivery of goods
State R
State S
Activities are preparatory or auxiliary depending on whether or not the activity of the
fixed place of business itself forms an essential and significant part of the activity of the
enterprise as a whole
The storage or maintenance of goods that is not actually preparatory or auxiliary may
constitute a PE - for example online retailers where the warehousing and distribution
activities are a core value driver of the business model
www.dlapiper.com 26 17 October 2018
Agency PE
Foreign enterprise
Commissionaire Customer
Transfer ownership of
goods/provisions of
services
Conclude contract
State R
State S
Commission
Current Article 5(5) agency PE rule
"…where a person other than an agent of an
independent status…is acting on behalf of an
[foreign] enterprise and habitually concludes
contracts in the name of the [foreign] enterprise"
Agency PE rule under MLI (Article 12)
"…where a person …plays the principal role leading to the
conclusion of contracts that are routinely concluded without
material modification by the enterprise… …, and these contracts
are
a. ….
b. for the transfer of ownership of, or granting of right to use,
property owned by the [foreign] enterprise, or that
[foreign] enterprise has the right to use, or
c. for the provision of services by that [foreign] enterprise."
www.dlapiper.com 27 17 October 2018
Anti-Fragmentation Rules
Exception does not apply to a fixed
place of business used or maintained
by an enterprise if the enterprise, or
a closely related enterprise,
carries on business activities at that
same place, or at another place in
the same State, and
That place, or other place, is a PE
of the enterprise or the closely
related enterprise: or
The overall activity resulting
from the combination of
activities carried on by the two
enterprises at the same place, or
by the same enterprise or closely
related enterprises at the two
places is not of preparatory or
auxiliary character
The anti-fragmentation
rule applies when
activities carried on by
two enterprises at the
same place, or by the
same enterprise or
closely related
enterprise at the two
places, constitute
complementary
functions that are
part of a cohesive
business operation
Anti-fragmentation provision in Article 13(4) covers situations where the combined
activities of closely related persons at the same place or different places in the same
country exceed what is considered to be preparatory or auxiliary
www.dlapiper.com 28 17 October 2018
Example Principal Company with Local Supply Chain
S Co and R Co are closely related enterprises
The business activities carried on by R Co at its warehouse and by S Co at its store
constitute complementary functions that are part of a cohesive business operation (i.e.
the storing of goods in one place and the selling of these goods through another place)
R Co
Principal
S Co
Seller (store) Customer
Sales contract, invoicing
and delivery of goods
State R
State S
R Co's
warehouse
Takes possession of
goods
Key Takeaways 4
www.dlapiper.com 30 17 October 2018
Key Takeaways
Identify and review existing structures that rely on treaty
benefits to determine if there is sufficient substance
(including commercial purpose)
Identify and monitor structures which rely on the absence of
certain treaty provisions (eg real estate provisions)
Consolidate specific structures involving special purpose
vehicles – these are unlikely to work in the long term if
treaty access is important
Factor in MLI requirements for planned/future transactions
and any ownership/supply chain reorganizations
Existing operating models need to be considered to address
PE risks
www.dlapiper.com 31 17 October 2018
Presenters
Shee Boon Law
Head of Knowledge
T: +31 (0) 20 541 92 59
F: +31 (0) 20 541 99 41
Joel Cooper
Partner,
Co-Head International Transfer Pricing
T: +44 (0)20 7796 6929
www.dlapiper.com 32 17 October 2018
Global Tax Group
370+ LAWYERS & ECONOMISTS
31 COUNTRIES
FULL SERVICE
TAX
CAPABILITY
Transactional Tax
International Tax
Transfer Pricing
VAT & Indirect Tax
Tax Controversy &
Disputes
International
Corporate
Reorganizations UK Transfer Pricing
Firm of the Year
International Tax Review
2017 & 2018
Netherlands Transfer Pricing Firm of the Year
International Tax Review
2017
Ranked in Band 3 by Chambers
Global
2018
Spain & GCC Tax Firms of the Year
International Tax Review
2018
www.dlapiper.com 33 17 October 2018