THE MULTILATERAL INSTRUMENT An overview

Maikel Evers – maikel.evers@oecd.org

OECD Centre for Tax Policy and Administration

Why an MLI?

Saxony

Prussia

fixed

base

3

Profit Shifting Base Erosion

1890 1920 1950 1980 2010 2013 1869

4

5

BEPS

background

report

February

2013

G20 endorses

BEPS Action

Plan

July

2013

October

2015

Launch of

BEPS Package

November

2015

G20 leaders

endorse BEPS

Package

Implementation phase

June

2016

Establishment

Inclusive

Framework

July

2017

2013

TREATY

___Divid

end___

_____

PE-

____

TREATY

___Divid

end___

_____

PE-

____

TREATY

___Divid

end___

_____

PE-

____

TREATY

___Divid

end___

_____

PE-

____

How to modify 3000+ tax treaties?

Bilateral renegotiations

Model protocol to amend treaties

Multilateral convention

to sit on top of and modify bilateral tax agreements

TREATY

___Divid

end___

_____

PE-

____

MULTI

LATERAL

TREATY

Multilateral negotiations

6

Multilateral negotiations

Substance of tax treaty-related BEPS measures agreed in the BEPS Package

Focus: How to modify tax treaties to

implement the agreed BEPS measures

Development of provisions on

mandatory binding MAP arbitration

MULTILATERAL

CONVENTION TO

IMPLEMENT TAX TREATY

RELATED MEASURES TO

PREVENT BASE EROSION

AND PROFIT SHIFTING

7

Facilitating different policy preferences

MULTILATERAL

CONVENTION TO

IMPLEMENT TAX TREATY

RELATED MEASURES TO

PREVENT BASE EROSION

AND PROFIT SHIFTING

Elements of flexibility

Specifying tax agreement covered

Meeting a Minimum Standard in another way

Opting out non-Minimum Standard provisions

Applying additional or alternative provisions

8

Tax Convention with Country B

15 July 1953

Tax Convention with Country F

21 April 1981

Tax Convention with Country G

18 March 1983

Tax Convention with Country T

1 December 2001

Tax Convention with Country X

18 July 2015

Covered Tax Agreements

of Country Y 2

Tax Convention with Country C

23 July 1972

Tax Convention with Country M

2 October 1989

Tax Convention with Country P

30 June 1992

Tax Convention with Country V

1 December 2001

Tax Convention with Country Y

18 July 2015

Covered Tax Agreements

of Country X 2

Country

X Country

Y

Contents and Mechanics

10

Multilateral Convention to Implement Tax Treaty Related

Measures to Prevent Base Erosion and Profit Shifting MLI

I

II

III

IV

VII

Preamble

Part I (Scope and Interpretation of Terms)

Part II (Hybrid Mismatches)

Part III (Treaty Abuse)

Part IV (Avoidance of Permanent Establishment Status)

Part V (Improving Dispute Resolution)

Part VI (Arbitration)

Part VII (Final Provisions)

VI

V

Strengthening the treaty network

through implementation of the

Action 6 Minimum Standard

Improving dispute resolution

through implementation of the

Action 14 Minimum Standard

Country A - Artificial Avoidance of the

Permanent Establishment Status 13

Reserve on entire Art 13

• Substantive provision

Sometimes including different options

• Compatibility clause

• Reservation clause

• Clarity: Notification clause

reflecting choice of options

• Certainty: Notification clause

clarifying existing provisions within scope

Art 5(4.1) OECD MTC – Fragmentation

Option A or Option B Option A – Art 5(4) OECD MTC

Option B – Par. 30.1. Commentary Art 5(4)

None

Reserve on Option A for certain CTAs

Reserve on fragmentation provision

Compatibility clause

2-3

4

5

6

7-8

Make notification here Art 5(4) of the Convention with X

Notify choice for Option A

Option A – Art 5(4) OECD MTC

12

Action 6 Minimum Standard

Principal Purpose Test (PPT) only;

PPT and simplified or detailed LOB Provision, or

Detailed LOB provision combined with

mechanism against conduit arrangements

Prevention of Treaty Abuse (excerpt) 7

Optional – Discretionary relief

Default rule – Principal Purposes Test

Optional – Simplified LOB provision

1

4

6

7a

7b

Optional – Symmetrical application LOB

Optional – Asymmetrical application LOB

Symmetrical Application:

Reservations (opt-out of default rule)

Country A Principal Purposes Test

A-X treaty Principal Purposes Test

A-Y treaty Principal Purposes Test

A-Z treaty Principal Purposes Test

A-W treaty Principal Purposes Test

None of the MLI signatories have made

this reservation. Are you sure?

YES CANCEL

Asymmetrical Application:

Optional application S-LOB (Article 7(7) MLI)

India S-LOB

South-Africa S-LOB No match: S-LOB does not apply

Denmark S-LOB Initially no match, but:

7(a) S-LOB applies symmetrically

Greece S-LOB Initially no match, but:

7(b) S-LOB applies asymmetrically

Russia S-LOB Match: S-LOB applies

Impact of the MLI

71

MLI POSITIONS

PROVISIONAL

70 MULTILATERAL

CONVENTION TO

IMPLEMENT TAX TREATY

RELATED MEASURES TO

PREVENT BASE EROSION

AND PROFIT SHIFTING

Signatures

oe.cd/mli

17

PPT adopted

by all

71

signatories 12

opt for

S-LOB

4 accept S-LOB

Action 6 Minimum Standard

Action 7 Recommendations

31 adopt new definition of

Commissionnaires 41 adopt either option of

Special Activities Exemption

26 adopt specific rules against

Splitting up of Contracts

47 accept

MAP

submission

to both CAs

All 71 signatories bring

MAP up to standard

Action 14 Minimum Standard (example)

Will implement

notification or

consultation process

26

opt for

arbitration

Action 14: Arbitration

Action 14: Arbitration

26

opt for

arbitration

Entry into Force and Effect

0

10

20

30

40

50

60

70

80

2017/2nd 2018/1st 2018/2nd 2019 and beyond

Projected timing ratification process

26

Entry into force

8

• Entry into force of the MLI

• 5 ratification instruments required

• Entry into force for each other signatory

1 2 3 4 5

• MLI in force

71 jurisdictions signed up

First five ratify > MLI in Force

MLI modifies Covered Tax Agreements

Entry into force: impact on treaty networks

27

Other taxes (taxable periods)

1/4/2018 1/10/2018 e.g. 1/1/2019 28

Entry into effect: timing

Withholding taxes

1/4/2018 1/1/2019

As of the latest date on which the MLI enters into force for each of the Contracting Jurisdictions

MLI provisions have effect as of 1 January of next

calendar year

As of the latest date on which the

MLI enters into force for each

of the Contracting Jurisdictions

Expiration of a

period of 6 months

Effect for taxes levied with respect to taxable periods beginning as of

that moment

1/4/2018

1/3/2018

Government may want to

reconsider its MLI position

Government takes account of

stakeholder feedback (usually

parliamentary procedure)

Jurisdiction shares draft position

with other Ad hoc Group

members

Flexibility of the MLI over time

Signature deposit of provisional

MLI position

Ratification deposit of final

MLI position

Full flexibility Full flexibility Limited flexibility

• Change list of treaties

• Make/withdraw reservations

• Select / delete opt-in

• Change list of treaties

• Make/withdraw reservations

• Select / delete opt-in

• Expand list of treaties

• Withdraw reservations

• Additional opt-ins

…. at any time, as often as a jurisdiction wants.

29

Making the MLI user friendly

31

Clarity: Application toolkit

Depositary

tools

• Already online:

• Matching database – beta version online @ oe.cd/mli

• To be further developed by Secretariat and ad hoc Group

MLI

POSI-

TIONS

Articles 10 11 , 11 10 & 12(8) will be replaced

by Article 7 1 .

• OECD Secretariat developing guidance on basis of

popular demand

• General approach

– Integrate authentic (ENG/FR) MLI provisions into

one document containing the CTA

– Highlight authentic MLI provisions

– Reflect numbering of MLI provisions but follow

order of CTA / MTC

32

Under development: Readers’ Guidance Toolkit

Multilateral Instrument

Toolkit for the

development of

Readers’ Guidance

© OECD Secretariat 2018

MULTILATERAL

CONVENTION TO

IMPLEMENT TAX

TREATY RELATED

MEASURES TO

PREVENT BASE

EROSION AND

PROFIT SHIFTING

Profit