BEPS Action 15 Multilateral Instrument - UK Implement | KPMG | UK
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BEPS Action 15 Multilateral Instrument - UK Implementation

BEPS Action 15 Multilateral Instrument - UK Implement

HM Treasury and HMRC set out how the UK plans to respond to changes to bilateral tax treaties proposed by the BEPS Multilateral Instrument.


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Following the November publication by the OECD of the Multilateral Instrument (MLI), through which countries are able to quickly implement the changes to bilateral treaties proposed by the BEPS project, HM Treasury and HMRC officials have presented details of the extent to which the UK plans to adopt the changes. The proposals set out the Government’s thinking in relation to all of the potential changes included within the MLI. Whilst final decisions will be made by Ministers, and there is a short period of consultation until 10 February, these proposals very clearly set out the Government’s views and are unlikely to change significantly. In brief, the UK plans to implement the major anti-abuse measures to improve dispute resolution and introduce more widespread mandatory binding arbitration. Of the changes not being adopted, most significantly, the UK will largely not implement changes that would expand the definition of Permanent Establishments (PEs). 

The proposals detail the Government’s position on each of the substantive articles of the MLI covering changes relating to hybrid mismatches, treaty abuse, artificial avoidance of PE status and improving dispute resolution. Some of the changes require minimum standards which have to be adopted, others are optional. Largely, the UK is only proposing the minimal amount of mandatory change required to adhere to the minimum standards and is proposing to bring in very few of the other possible changes.

The changes that are proposed to be adopted include:

  • Transparent and dual resident entities provisions (articles 3 and 4);
  • Stronger anti-abuse wording to the preamble (article 5);
  • The anti-abuse Principal Purpose Test (article 7);
  • The anti-fragmentation rule relating to PEs (article 13);
  • The revised Mutual Agreement Procedure (MAP) (article 16);
  • The insertion of Article 9(2) to enable corresponding adjustments in transfer pricing cases (article 17); and
  • Baseball style’ arbitration (article 18).

The changes to the PE threshold have attracted a lot of comment and represent a major reform. So it is significant that there are no plans to bring in the changes to either the preparatory and auxiliary rules or the dependent agent test in Article 5 of the OECD model convention. Officials explained that improvements to the transfer pricing rules and concerns over the proliferation of PEs informed this approach.

The plans to improve dispute resolution are very welcome at a time when the number of cross border disputes are inevitably going to increase. The proposal is to adopt ‘baseball style’ last best offer arbitration which has a successful track record between the US and Canada and will represent a real improvement over the existing mechanisms. If, as expected, the other 19 countries which publicly committed to mandatory binding arbitration also adopt the measure, this could herald a sea change in treaty dispute resolution. 

As regards implementation a signing ceremony is planned for June 2017. The MLI will take effect four months after the fifth signatory deposits its instrument of ratification with the OECD. Our expectation is that the changes will go live from sometime early in 2018.

To help you understand what these changes mean for your organisation, we are holding a webinar on Thursday 12 January where we will consider the recently published multilateral Instrument. Our discussion will feature members of KPMG’s international tax team and will include an analysis of its scope, in terms of the areas of tax it will cover, and how we expect it to operate in practice. To register click here.

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