On 7 June 2017 the OECD hosted a signing ceremony in Paris at which representatives of 68 jurisdictions, includingWang Jun, Commissioner of the Chinese State Administration of Taxation (SAT), signed the G20/OECD BEPS Project’s Multilateral Instrument (MLI). The MLI was envisaged by the 2013 BEPS Action Plan (Action 15) as a mechanism for simultaneously updating thousands of bilateral double tax agreements (DTAs) with the October 2015-finalized BEPS minimum standards and recommendations, and so deliver a more robust global tax framework. It had been released by the OECD on 24 November 2016, following its adoption by the 100 plus jurisdictions of the MLI development group.
The conclusion of the MLI by the 68 signatory jurisdictions is anticipated to lead to updates of in excess of 1100 DTAs, out of a global network of more than 3000. A further 8 countries have formally expressed their intent to sign the MLI, and an additional 25 plus countries are anticipated to join the MLI by the end of 2017, for which further signing ceremonies may be arranged. Updates will be made, inter alia, to treaty abuse rules, permanent establishment (PE) rules, and MAP rules. In view of the requirements for MLI ratification by jurisdictions, the treaty updates are anticipated to generally start to take effect in 2019 and 2020.
The first round of updates will update 46 of China’s DTAs, which may rise to 52 in the near future. This includes the DTAs with most of China’s major trading and investment partners, but not the US, which has not signed the MLI. The most significant updates will be the insertion of treaty anti-abuse principal purposes test (PPT) rules into each of the updated DTAs, alongside a new ‘preamble’ reinforcing anti-treaty abuse rules. There will also be a general replacement of the corporate tax residence tie breaker test in the updated DTAs, and a modernization of the MAP and TP articles in older treaties. However, the most highly anticipated MLI update, in respect of the new BEPS PE rules, will not be made to Chinese DTAs.
A host of other rules adopted by other MLI signatories, in relation to arbitration, transparent entities, and PE triangular abuses, will also not be adopted by China. Enterprises operating cross-border with China should monitor the entry into effect of the new DTA rules and new SAT guidance, and plan accordingly.