Loyens & Loeff

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

On 7 June 2017, the multilateral instrument (MLI) was signed covering 68 jurisdictions. This provisional overview provides a high-level summary of the 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. For more information on the specifics of the MLI, please see our article of 25 November 2016 and our article of 8 June 2017.

Number of tax treaties notified

  Number of bilateral tax treaties to be covered by the MLI Number of bilateral tax treaties concluded
NL 82 94
BE 98 104
LUX 81 81
CH 14 94

The Netherlands has not notified the following bilateral tax treaties to the OECD: Belgium, Brazil, Bulgaria, Denmark, Ireland, Kosovo, Kyrgyzstan, Poland, Spain, Switzerland, Taiwan and Ukraine.

Belgium has not notified the following bilateral tax treaties to the OECD: Germany, Japan (2 treaties currently in force), Norway (2 treaties currently in force) and the Netherlands.

MLI Measure 3: Transparent Entities

Income derived by or through a transparent entity will only be considered income of a resident of a treaty jurisdiction (and thus eligible for treaty benefits) to the extent that income is treated as income of a (another) resident by that treaty jurisdiction.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

3(1) & 3(2)

X

Reserves the right not to apply provision to existing transparent entity treaty provisions which identify in detail the treatment of specific fact patterns and types of entities or arrangements

3(5)(d)

X

X

n/a

Reserves the right not to apply the rule of 3(2) which states that elimination of double taxation is not available with respect to income which may be taxed by the treaty partner jurisdictions according to the provisions of the Covered Tax Agreement to the extent that those provisions allow such taxation solely because the income is also income derived by a resident of that treaty partner jurisdiction

3(5)(f)

X

X

n/a

MLI Measure 4: Dual Resident Entities

The treaty residency of a dual resident entity is determined by mutual agreement between the treaty jurisdictions. Treaty benefits are in principle withheld from the entity until such mutual agreement is reached.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

4(1)

X

X

X

MLI Measure 5: Application of Methods for Elimination of Double Taxation

Provides three options to countries with respect to elimination of double taxation: (a) disallow the exemption method for income that is exempt or subject to a reduced treaty rate in the other jurisdiction, (b) disallow the exemption method for dividends that are deductible in the other jurisdiction and (c) solely apply the credit method.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies Option A (credit method instead of exemption method for any income that is exempt or taxed at a reduced tax rate by other state pursuant to Covered Tax Agreement; cf. art. 23A(4) OECD Model)

5(2)

X

Applies Option B (credit method instead of exemption method for dividends that are deductible for payer in other state)

5(4)

X

X

X

X

Applies Option C (credit method for all income that may be taxed in other state)

5(6)

X

X

X

X

Applies none of the options

5(1)

X

X

X

Reserves the right not to allow treaty partners to apply Option C with respect to one or more identified or all of its Covered Tax Agreements.

5(9)

X

X

MLI Measure 6: Purpose of a Covered Tax Agreement

Includes language in the preamble of tax treaties stating that treaty jurisdictions do not intend to create opportunities for tax evasion or avoidance. As a BEPS minimum standard this provision is mandatory.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

6(1)

Includes a reference in preamble to ‘developing economic relationship and enhancing co-operation in tax matters’

6(3)

Reserves the right not to apply provision to Covered Tax Agreements that already contain preamble language describing that treaty jurisdictions do not intend to create opportunities for tax evasion or avoidance

6(4)

X

X

X

MLI Measure 7: Prevention of Treaty Abuse

As a BEPS minimum standard, countries must include one of the following in their tax treaties: (i) a principal purpose test ("PPT"), (ii) a PPT together with a simplified limited limitation on benefits ("LOB") test or (iii) an extensive LOB together with an anti-conduit provision.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies Principal Purpose Test

7(1)

Applies discretionary relief under Principal Purpose Test

7(4)

X

Reserves the right not to apply the Principal Purpose Test to Covered Tax Agreements that already contain a principal purpose test

7(15)(b)

X

X

X

Opts for Simplified LOB

7(6)

X

X

X

X

Chooses to apply the Simplified LOB only in relation to treaty partners that have opted for the Simplified LOB

7(7)(a)

X

X

X

X

Allows a treaty partner that has opted for the Simplified LOB to apply the Simplified asymmetrically

7(7)(b)

X

X

X

X

MLI Measure 8: Dividend Transfer Transactions

A reduced rate of source state taxation on dividends pursuant to a tax treaty only applies if a minimum ownership threshold required by the tax treaty is met throughout a retrospective 365-day testing period.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

8(1)

X

X

MLI Measure 9: Capital Gains on Shares in Real Estate Companies

Includes a retrospective 365-day testing period with respect to a value threshold in the definition of ‘real estate company’ in a tax treaty and/or includes ‘ownership interests comparable to shares’ in Covered Tax Agreements that already includes provisions to tax capital gains derived from shares in real estate companies, or (optionally) replaces existing Covered Tax Agreement provisions entirely with the new art. 13(4) OECD Model as per the final BEPS Action 6 report, or adds this provision to Covered Tax Agreements currently lacking a provision on real estate companies.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies the retrospective 365-day testing period to existing provisions on real estate companies

9(1)(a)

X

X

X

Applies the inclusion of interests comparable to shares to existing provisions on real estate companies

9(1)(b)

X

X

Chooses to replace or add provision on real estate companies

9(3)

X

X

X

X

MLI Measure 10: Third-country PE

Denies treaty benefits for income that the state of residence of the taxpayer attributes to a low-taxed permanent establishment (PE) of the taxpayer in a third country, unless an active trade or business is carried out in that PE.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

10(1) – 10(3)

X

X

X

MLI Measure 11: Savings Clause

Allows a state to tax its own residents notwithstanding the provisions of a tax treaty.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

11(1)

X

X

X

MLI Measure 12: Artificial Avoidance of PE Status – Commissionaire Arrangements

Lowers the threshold for the existence of a dependent agent PE to include foreign persons acting on behalf of a taxpayer that habitually play a principal role in the conclusion of contracts on behalf or by the taxpayer.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

12(1) & 12(2)

X

X

X

MLI Measure 13: Artificial Avoidance of PE Status – Specific Activity Exemption

Stipulates that: (a) the specific activity exemption in the treaty definitions of a PE applies only to activities of an auxiliary or preparatory character or (b) the specific activity exemption in the treaty definitions of a PE applies irrespective of whether an activity is of an auxiliary or preparatory character. The anti-fragmentation rule aggregates activities carried on by closely related enterprises for purposes of determining the existence of a PE.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies Option A (specific activity exemption applies only to activities of auxiliary or preparatory character)

13(2)

X

X

X

Applies Option B (specific activity exemption applies irrespective of whether activity is of auxiliary or preparatory character)

13(3)

X

X

Applies anti-fragmentation rule

13(4)

X

X

MLI Measure 14: Splitting-up of Contracts

For the determination if a building site, or construction or installation project constitutes a PE, (i) activities carried on during one or more periods of time that, in the aggregate, exceed 30 days and (ii) connected activities carried on by closely related enterprises, are aggregated.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

14(1)

X

X

X

Reserves the right not to apply provision with respect to existing treaty provisions relating to the exploration for or exploitation of natural resources

14(3)(b)

n/a

n/a

n/a

MLI Measure 15: Definition of ‘Closely Related Persons’

Persons are closely related if one has control of the other or both are under the control of the same person. A close relationship is deemed to exist in case a threshold of 50% of vote and value in a company is met.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

15(1)

X

X

MLI Measure 16: Mutual Agreement Procedure

Implements the BEPS minimum standard for mutual agreement procedures which is intended to ensure an effective and timely resolution of treaty-related disputes. The BEPS minimum standard is complemented by optional best practices.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

16(1) – 16(3)

Reserves the right not to apply the second sentence of 16(2): “Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting Jurisdictions.”

16(5)(c)

X

X

X

MLI Measure 17: Corresponding Adjustments

Requires jurisdictions to make an adjustment to the profits of a taxpayer in its jurisdiction if the other contracting jurisdiction makes an at arm’s length pricing adjustment to the profits of a taxpayer in that other contracting jurisdiction. Any increase or decrease in that other jurisdiction would be mirrored by a corresponding adjustment to the profits of the taxpayer in the first jurisdiction.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Applies provision

17(1)

MLI Measures 18/19/23/24/26: Mandatory Binding Arbitration

Provides countries the option to implement mandatory binding arbitration in their tax treaties as a dispute resolution mechanism for disputes that prove unable to be solved through a mutual agreement procedure.

Options & Reservations

MLI Section

NL

BE

LUX

CH

Chooses to apply mandatory binding arbitration

18

Reserves the right to replace the two-year period for resolution of a case with a three-year period

19(11)

X

X

X

Chooses to exclude unresolved issues from submission to arbitration if a domestic judicial decision has been rendered on the issue

19(12)(a)

X

X

Chooses to terminate an arbitration process if a domestic judicial decision is rendered on the issue before an arbitration decision is delivered

19(12)(b)

X

X

Chooses to require taxpayers that submit a case to arbitration and their advisors to sign a non-disclosure agreement that applies during the arbitration proceedings

23(4)

X

X

X

Chooses to allow competent authorities not to implement an arbitration decision if they agree on a different solution within three months after delivery of the arbitration decision

24(2)

X

Reserves the right to apply the alternative resolution rule of 24(2) only to Covered Tax Agreements for which the ‘independent opinion’ approach of 23(2) applies

24(3)

X

1

1

Reserves the right not to apply mandatory binding arbitration with respect to tax treaties that already provide for mandatory binding arbitration

26(4)

X

X

1. Luxembourg and Switzerland have stated in their provisional lists of reservations and notifications that they reserve the right not to apply the alternative resolution rule of 24(2) to Covered Tax Agreements for which the ‘independent opinion’ approach of 23(2) applies. However, this is not an option provided by the MLI. Therefore, we assume that Luxembourg and Switzerland intended to reserve the right to apply the alternative resolution rule of 24(2) only to Covered Tax Agreements for which the ‘independent opinion’ approach of 23(2) applies, in accordance with the provisions of the MLI.

MLI Measures 35/36: Entry into Effect

Options & Reservations

MLI Section

NL

BE

LUX

CH

Reserves the right to apply the ‘30-day rule’

35(7)

X

X

X

Reserves the right to apply the Mandatory Binding Arbitration provision to cases submitted prior to the entry into force of the MLI between contracting jurisdictions to a Covered Tax Agreement, subject to competent authority agreement with respect to a specific case

36(2)

X

X

X

Contact your MLI specialist

This high level overview is provisional and cannot be seen as tax and/or legal advice. Please contact one of our MLI specialists before taking any action based on this publication.