On July 17, 2023 the OECD released a consisting out of 2 parts. The first part contains the text of the so-called Subject to Tax Rule (STTR) and the accompanying Commentary. The second part of the report contains provisions governing the application of elimination of double taxation provisions in respect of additional tax payable under the STTR. When releasing the STTR on July 17, 2023 the OECD already announced that a multilateral instrument will facilitate the implementation of the STTR.
That multilateral instrument, which was adopted on September 15, 2023 the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), was released by the OECD in both the English and the French language on October 3, 2023. Next to the Multilateral MLI to Facilitate the Implementation of the Pillar Two Subject to Tax Rules on October 3, 2023 the OECD also released an Explanatory Statement to the Multilateral MLI to Facilitate the Implementation of Pillar Two Subject to Tax Rule in the English and the French language.
The STTR MLI can swiftly implement the STTR in existing bilateral tax treaties without the need for bilateral negotiations.
The MLI shall was opened for signature by all States on October 2, 2023. The MLI is subject to ratification, acceptance or approval.
Entry into Force
Article 12 of the MLI contains provisions that arrange the entry into force of the MLI. Article 11 of the MLI arranges the following:
- The MLI shall enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of deposit of the second instrument of ratification, acceptance or approval.
- For each Signatory ratifying, accepting, or approving this MLI after the deposit of the second instrument of ratification, acceptance or approval, the MLI shall enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by such Signatory of its instrument of ratification, acceptance or approval.
Entry into Effect
Article 12 of the MLI contains provisions that arrange the entry into effect of the MLI. Article 12 of the MLI arranges the following:
1. Subject to the other paragraphs in this Article, the provisions of this MLI shall have effect with respect to a Covered Tax Agreement on or after the latest of the dates on which this MLI enters into force for each of the Contracting Jurisdictions to the Covered Tax Agreement.
2. The provisions in Annex I (The subject to tax rule) shall have effect in each Contracting Jurisdiction with respect to a Covered Tax Agreement for taxes levied in accordance with the provisions in Annex I (The subject to tax rule) by a Contracting Jurisdiction, on or after the first day of a fiscal year beginning on or after the expiration of a period of six calendar months from the latest of the dates on which this MLI enters into force for each of the Contracting Jurisdictions to the Covered Tax Agreement.
3. The provisions in Annex II (Additions to the subject to tax rule: Taxes on an alternative basis), Annex III (Additions to the subject to tax rule: Taxes imposed at the point of distribution), Annex IV (Additions to the subject to tax rule: Recognised pension fund) and Annex V (Additions to the Subject to tax rule: Circuit-breaker provision) shall have effect with respect to a Covered Tax Agreement on the date on which the provisions in Annex I (The subject to tax rule) have effect with respect to that Covered Tax Agreement.
4. For a new Covered Tax Agreement resulting from an extension pursuant to paragraph 5 of Article 10 (Notifications) of the list of agreements notified under subdivision ii) of subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms), the provisions of this MLI shall have effect in each Contracting Jurisdiction on the first day of a fiscal year beginning on or after the expiration of a period of six calendar months from the date of the communication by the Depositary of the notification of the extension of the list of agreements.
5. A Party may choose to replace:
a) the references in paragraph 2 to “the latest of the dates on which this MLI enters into force for each of the Contracting Jurisdictions to the Covered Tax Agreement”; and
b) the references in paragraph 4 to “the date of the communication by the Depositary of the notification of the extension of the list of agreements”;
with references to “30 days after the date of receipt by the Depositary of the latest notification by each Contracting Jurisdiction making the notification in paragraph 6 of Article 12 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the relevant provisions of this MLI with respect to that Covered Tax Agreement”.
6. Each Party that chooses to apply paragraph 5 to its Covered Tax Agreement shall notify the Depositary of its choice. Such notification shall cover all of its Covered Tax Agreements.
7. Where at least one Contracting Jurisdiction to a Covered Tax Agreement has made a notification under paragraph 6, paragraph 5 shall apply to that Covered Tax Agreement for both Contracting Jurisdictions.
8. A Party choosing to apply paragraph 5 shall notify the confirmation of the completion of its internal procedures with respect to a Covered Tax Agreement simultaneously to the Depositary and the other Contracting Jurisdiction.
More information on the report (the STTR) that was released on July 17, 2023 can be found here.
Copyright – internationaltaxplaza.info
Follow International Tax Plaza on Twitter (@IntTaxPlaza)