Representatives from over 70 jurisdictions on 7 June 2017 participated in an OECD ceremony for the signing of a multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS).
Tax professionals from KPMG member firms around the globe are considering what may be the effect or implications of the multilateral instrument (MLI) on their subject tax treaties.
The MLI was signed by 11 countries in the Asia Pacific region, and six of these signatories are in the top 20 economies in terms of GDP: China, Japan, India, Korea, Australia, and Indonesia. The remaining countries in the Asia Pacific region that signed the MLI are: Fiji, Hong Kong, New Zealand, Pakistan and Singapore.
There are 11 Asia-Pacific countries that did not sign the MLI: Bangladesh, Cambodia, Laos, Malaysia, Mongolia, Myanmar, Papua New Guinea, Philippines, Sri Lanka, Thailand, and Vietnam.
Read a June 2017 report [PDF 1.2 MB] prepared by the KPMG member firm in Australia
Read a June 2017 report prepared by the KPMG member firm in Australia
Read a June 2017 report [PDF 78 KB] prepared by the KPMG member firm in Canada
The first round of MLI updates will update 49 of China’s income tax treaties, and the number may rise to 55 treaties in the near future.
Read a June 2017 report prepared by the KPMG member firm in China
Until now, it was not clear what approach to MLI the Czech Republic would take. It appears that the Czech Republic will only adopt the minimum standard—i.e., the rule to prevent treaty abuse or the “principal purpose test” and the rule allowing for the effective resolution of disputes by mutual agreement (dispute resolution).
The Czech Republic intends to subject all valid tax treaties to the multilateral convention (except for the treaty with South Korea because it already includes the required provisions). Modifications to each income tax treaty will only be made if the other treaty-partner state also subjects the treaty to the regime of the MLI and if both parties agree on the identical wording of the provision.
How the MLI will affect bilateral treaties will thus depend on further bilateral negotiations. This means that the implementation may eventually take place in a broader scope than the minimum standard presently proposed by the Czech Republic.
Read a June 2017 report prepared by the KPMG member firm in the Czech Republic
Read a June 2017 report prepared by KPMG’s EU Tax Centre
Regarding France's tax treaties, 88 are covered (out of a total of 125 treaties) by the MLI, including those concluded with major business partners—e.g., Germany, the Netherlands, and the United Kingdom. As did several other countries, France also included the treaty concluded with the United States even though the United States was not expected to sign the MLI.
The statements made by France, to date, reveal that the following proposals on permanent establishments (PEs) have been adopted:
Other implications for France's tax treaties include:
These positions taken by France are expected to be confirmed at the time of depositing the instrument ratifying the MLI.
For more information, contact a tax professional at FIDAL* in Paris or KPMG's French Tax Center in New York:
Patrick Seroin | +1 212-954-2523 | email@example.com
Nathalie Cordier-Deltour| +33 (0)1 55 68 14 54 | Nathalie.Cordier-Deltour@fidal.com
*FIDAL is a French law firm that is independent from KPMG and its member firms.
Concerning the treaties in India's network of income tax treaties:
Read a June 2017 report [PDF 378 KB] prepared by the KPMG member firm in India
Concerning the implications of MLI provisions affecting India’s network of income tax treaties include the following:
Read a June 2017 report [PDF 377 KB] prepared by the KPMG member firm in India
The Japanese Ministry of Finance on 8 June 2017 released a statement on the MLI, and that briefly explains measures to prevent BEPS, and tax agreements covered by the MLI.
Read a June 2017 report [PDF 125 KB] prepared by the KPMG member firm in Japan
Read a June 2017 report prepared by the KPMG member firm in Luxembourg
The Dutch Deputy Minister of Finance had previously outlined the Dutch position on the MLI in a March 2017 letter to the Lower House and in an October 2016 position paper. The Ministry of Finance on 7 June 2017 published an information notice with comments on the outcome of the signing ceremony for the Netherlands. The List of Reservations and Notifications for the Netherlands (published 7 June 2017) is mostly in accordance with the previously communicated positions. These include:
The next step is the ratification process in the Netherlands, which is expected to start in the second half of 2017. Assuming ratification by the Netherlands takes place during the course of 2018, the MLI provisions can enter into force for covered tax agreements with a match (listed by jurisdictions that have also ratified before the end of 2018) as of January 1, 2019.
Read a June 2017 report prepared by the KPMG member firm in the Netherlands
Polish authorities announced its position on 78 income tax treaties will be covered by the MLI. However, not all of these income tax treaties are with countries that have signed the MLI. Among the items in the MLI reflecting Poland's position are the following:
However, amendments to the permanent establishment provision will not be introduced. Thus, the entry into force of the MLI would not appear to affect the current language of the existing income tax treaties.
Read a June 2017 report [PDF 371 KB] prepared by the KPMG member firm in Poland
Singapore has selected 68 out of the possible 82 income tax treaties as potential covered tax agreements (CTAs). Of these 68 tax treaties, three treaty partners—Germany, Sweden, and Switzerland—have not chosen the treaty with Singapore as a CTA, and 17 countries have not signed the MLI. This leaves 47 of the 68 income tax treaties in Singapore’s tax treaty network to be changed with the signing of the MLI.
Singapore has will adopt the following MLI provisions (among others) under the selected CTAs:
Read a June 2017 report [PDF 408 KB] prepared by the KPMG member firm in Singapore
Switzerland announced at the time of the signing of the MLI that income tax treaties with only 14 countries or jurisdictions—Argentina, Chile, India, Iceland, Italy, Liechtenstein, Lithuania, Luxembourg, Austria, Poland, Portugal, South Africa, the Czech Republic, and Turkey—would be renegotiated and amended through the MLI. If agreements on the technical implementation of the MLI can be obtained with other treaty partners, those corresponding treaties would also be amended at a later stage, and to the extent that an agreement is reached, additional treaty partners may be included.
Switzerland is focusing primarily on the implementation of the BEPS minimum standards, which could alternatively be agreed upon by means of a bilateral tax treaty amendment. This implies that Switzerland has reserved the right not to apply the MLI provisions on matters that go beyond the minimum standards. These include the BEPS provisions concerning transparent entities and dual resident entities, anti-abuse rules for permanent establishments (PEs) situated in third jurisdictions, or the artificial avoidance of PE status through commissionaire arrangements. In the area of treaty abuse, Switzerland opts for the “principal purpose test.” In accordance with this treaty policy, Switzerland will opt for the inclusion of the mandatory and binding arbitration clause, as provided by the MLI.
The new treaty provisions resulting from the implementation of the BEPS minimum standards modify the description of the purpose in the preamble, include a standard anti-abuse clause, and adjust the provisions governing dispute resolution within the framework of mutual agreement procedures. Switzerland has decided to implement the mandatory and binding arbitration provision.
Switzerland’s Federal Council is expected to publish and submit the MLI for public consultation towards the end of 2017, to be followed by the usual parliamentary approval process before it can enter into force. If this process is successful, the MLI items would enter into force at the earliest by 1 January 2019.
Read a June blog item posted by the KPMG member firm in Switzerland
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.