The BEPS project shows progress: the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) was signed by 67 countries on 7 June 2017. Norway’s Minister of Finance, Siv Jensen, signed the convention on behalf of Norway, however, neither the Department of Finance nor OECD has published Norway’s selections in relation to the MLI nor which tax treaties are to be comprised by the changes. The information is expected to be published upon issuance of a Proposition to the Parliament.
How does the MLI work?
As part of the OECD’s / G20’s project on tackling BEPS (Base Erosion and Profit Shifting), an ad hoc Group has been working with a multilateral instrument, which makes it possible to implement changes to more than 2000 bilateral tax treaties worldwide in one go. The instrument is meant to be an effective tool to implement the tax treaty related measures in order to tackle aggressive international tax planning. The actions comprised by the MLI include measures against hybrid mismatch arrangements (Action 2) and treaty abuse (Action 6), strengthened definition of permanent establishment (Action 7) and measures to make mutual agreement procedures (MAP) more effective (Action 14), including provisions on MAP arbitration. For more details on the MLI, we refer to our newsletter in this link.
The MLI is designed to give flexibility with respect to ways of meeting the BEPS minimum measures on treaty abuse and dispute resolution, which indicates that it was challenging for the countries to agree on issues to be covered by the MLI. As such, the MLI provides several options on relevant measures that each party to the MLI can choose from. In general, in order for a bilateral tax treaty to be amended, both parties must agree to the changes. As such, the MLI will as a main rule amend the treaty provisions where both parties have made matching selections and reservations.
The 67 signatories have listed 2,362 treaties to be covered, already leading to over 1,100 matched agreements.
When will the modifications become effective?
Following the signature procedure, countries will ratify the MLI according to their domestic procedures. The MLI itself will enter into force three months after five countries has ratified the MLI. Six months after the MLI has entered into force, it will take effect for taxes levied (with the exception of taxes withheld at source). Thus, the MLI measures may be effective in the course of 2018 at the earliest.
For each jurisdiction, the MLI will enter into force after the relevant jurisdiction deposits its instrument of ratification of the MLI. Once jurisdiction A and B has ratified the instrument, after the MLI has entered into force, the covered tax agreement between A and B will be modified, provided that there is a match between the reservations and selections made by the two parties.
Overview of signatories, indicating tax treaties chosen to be covered and their MLI positions can be found here.
Norway’s MLI positions are still unknown
Norway has signed the MLI, however, Norway is the only signatory country which has not published its MLI positions in the link above. Norway’s MLI positions and treaties to be covered will be made available as soon as Norway has submitted the Convention to its Parliament in line with the required procedures in Norway. As such, it is uncertain at this point which treaties will be affected and from what point in time the changes will enter into force.
Challenging to determine the actual effect of the MLI to a relevant tax treaty
Subsequent to the ratification process, it is expected that consolidated versions of tax treaties modified by the MLI by individual jurisdictions are prepared.
Before consolidated versions of the relevant tax treaties are prepared, navigating through the numerous selections and reservations made by the relevant parties in order to determine the effect of the MLI to the relevant tax treaty will be a challenging exercise.
We expect more information on Norway’s MLI positions to be published in the near future. We will keep you updated here on our blog.
Companies with cross-border activities should monitor the situation and assess whether the expected changes to the respective tax treaties can affect their businesses.
We are happy to discuss further details on the MLI, including expected changes and how it may affect your business. Please find our contact details below.
Jeg heter Ståle Wangen og jobber som advokat i Advokatfirmaet PwC. Jeg leder PwC Norges avdeling for internasjonal skatt og jobber til daglig med å bistå norske og utenlandske virksomheter med skatteplanlegging, strukturering av kjøp og salg av virksomheter, internprising og andre spørsmål knyttet til bedriftsbeskatning i Norge og utlandet. Jeg har mer enn 20 års erfaring med skatterådgivning.
Skatteverdenen blir stadig mer internasjonal og kompleks. Ved kjøp og salg av varer og tjenester utenfor Norges grenser må norske virksomheter håndtere skatteregler både i utlandet og i Norge. PwC har kontorer i de fleste land og vi har et unikt nettverk av skatterådgivere som kan bistå med spesialkompetanse på de fleste områder. Jeg håper mine innspill kan gi deg en alternativ innfallsvinkel til ulike temaer enn hva tradisjonelle nyhetsbrev gir.
Ta gjerne kontakt dersom du har spørsmål, kommentarer eller innspill.
My name is Ståle Wangen and I work as a partner and lawyer in PwC Tax and Legal Services in Oslo. I am head of PwC Norway’s international taxation services, and I have more than 20 years of experience assisting Norwegian and foreign businesses with tax planning, cross border restructuring, mergers and acquisitions (M&A), transfer pricing and other issues related to corporate taxation
Tax world is becoming more international and complex. Norwegian companies must increasingly handle tax rules abroad. PwC has offices almost all over the world and we have a unique network of tax advisors who can assist with expertise in most areas.
Please feel free to contact me if you have any questions, comments or input.