On 7th June, 67 countries signed the so-called Multilateral Instrument (MLI). Tax advisors may need to check how this agreement will change the tax treaties their clients use and whether there is a need to look into alternative ways of structuring. This is because supporters of this MLI claim that it will increase the proceeds from taxes with at least USD 100 billion.
The Organisation for Economic Co-operation and Development (OECD) claims that these 67 countries have signed over 2,300 tax treaties in total. This MLI provides these countries flexibility regarding their positions towards all these tax treaties. For example they may choose which existing tax treaties they would like to modify to prevent Base Erosion and Profit Shifting (BEPS) in respect of treaty abuse, improvement of dispute resolution, hybrid mismatch arrangements and the strengthened definition of permanent establishments. As a result thereof, one can mention that it, for example, allows countries to tackle structures with so-called letterbox companies that pay interest, royalty’s and dividends.
Once a tax treaty has been listed by the two treaty partner countries, the treaty becomes an agreement to be covered by the MLI.
The OECD will analyse the data from the various countries’ regarding their MLI positions and expects to launch a public online matching tool. The first part of the tool will be made available as soon as possible.
Please note that amongst those 67 countries, all EU countries have signed the MLI. The USA, however, did not sign the MLI. The United Kingdom, Switzerland and Mauritius have taken a different position on essential elements.
If you want to know more about the developments regarding the MLI please contact Corney Versteden at HLB Van Daal & Partners in the Netherlands.