On December 19, 2016 the Australian Treasury released a discussion paper on Australia’s adoption of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Hereafter: the MLI). The Australian Government invites all interested parties to make a submission on the potential impacts of Australia becoming a Party to the Multilateral Instrument. The closing date for submissions is February 6, 2017.
The Multilateral Instrument, which was released by the Organisation for Economic Cooperation and Development (OECD) on November 24, 2016, is a multilateral treaty that will enable jurisdictions to swiftly modify their bilateral tax treaties to implement measures designed to better address multinational tax avoidance. These measures were developed as part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.
In the discussion paper the following is stated regarding Australia’s proposed approach to adopting the MLI:
“The MLI provides Australia with a unique opportunity to safeguard Australia’s tax treaty network by adopting internationally agreed integrity rules. Given that these rules are closely aligned with Australia’s current treaty practice, Australia could adopt the MLI to the widest possible extent.
The initial approaches outlined in this paper have been formulated using the following principles:
A. Apply the MLI to all bilateral tax treaties that do not already incorporate BEPS rules (which would exclude the 2015 German treaty — which incorporates most of the BEPS treaty-related measures).
B. Adopt the minimum standards and as many optional MLI articles as possible. Broad adoption of the MLI articles would enable the full range of tax integrity measures recommended under the BEPS Action Plan to be applied across Australia’s tax treaty network (subject to the agreement of the relevant treaty partner).
C. Make limited use of the MLI reservation system. Australia might consider entering a reservation if Australia’s existing treaty practice already meets or exceeds the new standard, or it is necessary to avoid any significant unintended impacts. For instance, it would be appropriate to enter a reservation if adopting the MLI article could create technical difficulties or if adopting the MLI article would inadvertently override existing integrity provisions that Australia should retain.”
The discussion paper furthermore describes the consultation focus questions as follows:
· Do you support Australia adopting the MLI?
· Do you agree with the proposed principles (paragraph 22) to guide the Government’s adoption of MLI articles?
For each of the integrity rules in the MLI (articles 3 - 26):
· Are there any significant issues the Government should consider in its decision to adopt the rule?
· For articles that require a choice (with respect to covered tax agreements, optional articles, optional paragraphs or reservations), which choices (or combinations of choices) do you favour and why?
· What practical options are there to minimise any uncertainty and compliance costs associated with the adoption of the MLI?
The discussion paper as released by the Australian Treasury on December 19, 2016 discusses a.o. the following subjects:
· Introduction
o OECD BEPS agenda and development of the MLI
o Adoption choices
o Australia’s proposed approach to adopting the MLI
· THE MLI Explained
o High level outline
o Identifying the effect of the MLI on an existing treaty
o Entry into effect
· Summary of the MLI Articles
o Consultation focus questions
o Article 3 — Transparent Entities
o Article 4 — Dual Resident Entities
o Article 5 — Application of Methods for Elimination of Double Taxation
o Article 6 — Purpose of a Covered Tax Agreement
o Article 7 — Prevention of Treaty Abuse
o Article 8 — Dividend Transfer Transactions
o Article 9 — Capital Gains from Alienation of Shares or Interests of Entities Deriving their Value Principally from Immovable Property
o Article 10 — Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions
o Article 11 — Application of Tax Agreements to Restrict a Party’s Right to Tax its Own Residents
o Article 12 — Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies
o Article 13 — Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions
o Article 14 — Splitting-up of Contracts
o Article 15 — Definition of a Person Closely Related to an Enterprise
o Article 16 — Mutual Agreement Procedure
o Article 17 — Corresponding Adjustments
o Articles 18-26 — Arbitration
Click here to be forwarded to discussion paper on Australia’s adoption of the MLI as released on December 19, 2016 by the Australian Treasury.
Further information on how to make a submission can be found here on the website of the Australian Treasury.
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