On October 28, 2016 the Dutch State Secretary for Finance sent a letter to the Dutch House of Representatives via which he informs the House on the progresses that has been made with respect to the development of a Multilateral Instrument to Implement the Tax Treaty related BEPS Measures (Hereafter: MLI). According to the Secretary the development of the MLI is almost completed. In the letter the State Secretary informs the House regarding the general outlines of the MLI. He also discusses the choices that The Netherlands can make within the MLI and the intentions he has in this respect.
The State Secretary starts by providing a general description of the MLI and the purpose thereof. The MLI is a multilateral treaty via which (outdated) Double Taxation Agreements (DTAs) can efficiently be amended in such way that they are in line with the most recent DTA provisions to combat Base Erosion and Profit Shifting (BEPS) as developed by the OECD. The MLI concerns the implementation of treaty related measures form BEPS Action 6 (Prevention of treaty abuse), BEPS Action 7 (Prevention of the artificial avoidance of PE status) and BEPS Action 14 (Making dispute resolution mechanisms more effective).
In his letter the State Secretary emphasizes that the MLI does not concern the implementation of proposed BEPS measures into national (tax) laws. He adds that these treaty related BEPS Actions on one hand consist out of minimum standards (minimum measures that are needed to effectively combat tax avoidance without causing double taxation). On the other hand they consist out of optional measures that can be helpful in this respect. The Secretary of State informs the House of Representatives that the discussions of the Ad Hoc Group have resulted in an officialese agreement regarding the content of the MLI, although according to the State Secretary the text of the MLI has not yet been formally finalized and is not yet publicly available.
The State Secretary emphasizes that the MLI is a flexible instrument. According to the Secretary this is shown in the possibilities to:
· chose which alternatives will apply to the implementation of the OECD standard. The minimum standard to prevent treaty abuse for example can be implemented by including (i) a principle purpose test (PPT) or (ii) by including combination of a provision on limitation of benefits (LOB) together with a PPT or (iii) by including a detailed LOB together with an anti flow-through provision;
· make a reservation arranging that the OECD standards will nota apply to DTAs that already contain similar provisions;
· make a reservation to not implement OECD standards that do not constitute a minimum standard.
According to the State Secretary the choices will in principle apply to all DTAs that will be placed under the operation of the MLI. States can however also chose to not amend DTAs via the MLI. because treaty negotiations are already underway and the OCED measures can be included directly in the DTA that is being negotiated.
The State Secretary also states the choices The Netherlands will make will not lead to an automatic amendment of all the existing DTAs concluded by The Netherlands and which are covered by the MLI. For amending the DTA an agreement between the treaty partners is necessary. Only in the case in which both treaty partners have accepted a certain amendment via the MLI, this will change the functioning of the respective DTA. Therefore the new OECD standards will only apply – on a reciprocal basis – in relation with jurisdictions that apply the same OECD standard and have accepted the implementation thereof for the respective DTA.
In his letter the State Secretary expresses that he expects that the Ad Hoc Group will formally adopt the text of the MLI in the very near future (probably by the end of November according to the Dutch State Secretary). The State Secretary also states that he expects that in the first half of 2017 the MLI will be signed by several jurisdictions that participate in the Ad Hoc Group. Signing is however also open for jurisdictions that do not participate in the Ad Hoc Group. When signing, parties will also have to indicate which choices the make within the MLI and what reservations they make.
In his letter the State Secretary also discusses the most important choices that have to be made regarding the MLI. According to the State Secretary these choices a.o. regard:
The DTAs to which the MLI will apply
The State Secretary states that it is his intention to have the MLI apply to as many existing DTAs concluded by The Netherlands as possible.
Minimum standards to avoid treaty abuse
According to the Dutch State Secretary a vast majority of jurisdictions participating in the Ad Hoc Group seems to prefer the inclusion of a PPT (although according to the State Secretary the further position of these countries is not yet clear). The State Secretary expresses that it is his intention (like these other jurisdictions) to opt for the PPT for as far as it regards The Netherlands.
Prevention of the artificial avoidance PE status
The State Secretary states that these measures do not constitute a minimum standard, but are optional measures. Although the State Secretary doesn’t explicitly state it in his letter, it seems that he tends to have these measures included in the MLI for as far as it regards The Netherlands.
Making dispute resolution mechanisms more effective
These measures consists out of a minimum standard and optional measures (provisions regarding binding arbitration). In his letter the State Secretary states that he finds it very important that taxpayers get certainty as soon as possible. He therefore intends to opt to include both the minimum standard and the optional measures in the MLI for as far as it regards The Netherlands. He adds that discussion within the Ad Hoc Group have shown that not all jurisdictions participating in the Ad Hoc Group have the same level of ambition with respect to the suggested provisions regarding binding arbitration as The Netherlands has.
Other
In his letter the State Secretary also discusses other treaty related BEPS measures (not included in the MLI). Furthermore he also discussed what positive influence the MLI can have on the position of developing countries.
Click here to download the letter from the Dutch State Secretary for Finance from the website of the Dutch Ministry of Finance. (The letter is only available in Dutch, 10 pages long and comes in the form of a downloadable Pdf-document)
Copyright – internationaltaxplaza.info
and
Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!
