Loyens & Loeff
Multilateral Instrument (MLI)

Multilateral Instrument (MLI)

The multilateral instrument (MLI) implements the treaty related anti-tax avoidance measures of the BEPS project in bilateral tax treaties.

A highly innovative aspect of the BEPS project, the MLI allows for the relatively rapid inclusion in existing bilateral tax treaties of measures against treaty shopping, artificial avoidance of the PE status and hybrid mismatches, as well as improvements of the dispute resolution mechanism. The MLI covers 87 jurisdictions, including the Netherlands, Belgium, Luxembourg and Switzerland, and will have a substantial impact on more than 1,500 existing bilateral tax treaties. 

Our team of experts closely monitors all developments related to the MLI.

 

Launch of multilateral treaty (MLI) to implement BEPS measures

On 24 November 2016, a group of more than 100 jurisdictions concluded negotiations on a multilateral instrument (MLI) that will modify the application of existing bilateral tax treaties to implement the tax treaty measures developed through the OECD/G20 BEPS project. The MLI allows for the relatively rapid inclusion in existing bilateral tax treaties of measures against treaty shopping, artificial avoidance of the permanent establishment (PE) status and hybrid mismatches, as well as improvements of the dispute resolution mechanism. Optional provisions of the MLI (generally) will only apply between jurisdictions if the jurisdictions make matching choices. Currently around 1,500 treaties are to be modified by the MLI while around 500 tax treaties more are expected to be modified.

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Netherlands MLI ratification and notification finalised

On 29 March 2019, the Netherlands deposited its MLI ratification bill with the OECD. Accordingly, the MLI will enter into force for the Netherlands on 1 July 2019. The MLI will generally enter into effect as from 1 January 2020 for the covered tax treaties concluded by the Netherlands with other jurisdictions that already completed their MLI ratification process by notifying the OECD (or will do so prior to 1 October 2019). The entry into effect of the MLI is likely to affect the entitlement to tax treaty benefits under covered tax treaties concluded by the Netherlands.

The deposited bill confirms the provisional list of choices and reservations notified by the Netherlands to the OECD in June 2017, with the exception of the (temporary) full reservation of the “PE anti-commissionaire provision” (article 12 of the MLI).

Read more: Dutch Parliament approves MLI ratification law

Read more: Dutch Lower House approves MLI and opts out of anti-commissionaire PE provision

 

Luxembourg Parliament adopts MLI ratification law

On 14 February 2019, the Luxembourg Parliament adopted the law ratifying the OECD Multilateral Convention to implement tax treaty related measures to prevent BEPS, better known as the ‘multilateral instrument’ (MLI). The vote confirms the limited opt-ins indicated by Luxembourg last year when signing the MLI.

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Overview: MLI choices made by the Netherlands, Belgium, Luxembourg and Switzerland

The MLI will modify a large number of existing bilateral tax treaties with anti-tax avoidance measures developed in the OECD BEPS project. The impact of these bilateral choices on a specific tax treaty will also depend on the choices made by the other treaty jurisdiction of that specific tax treaty. We created an overview of the MLI Choices made by the Netherlands, Belgium, Luxembourg and Switzerland.

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MLI Matching Overview

We prepared an overview showing whether the bilateral tax treaties of the above mentioned four jurisdictions with their most important treaty partners are so-called 'Covered Tax Agreements' (CTA) to which the MLI applies. 

Moreover, an overview sets out the impact of the so-called principal purpose test (PPT) of article 7 of the MLI (MLI PPT) on those CTAs. The PPT is an anti-abuse provision that should deny application of treaty benefits in certain situations. A number of outcomes regarding the PPT are possible between treaty partners.

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