On 29 June 2018, the UK deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “MLI”) with the OECD, joining the ranks of eight other jurisdictions (Austria, Isle of Man, Jersey, New Zealand, Poland, Serbia, Slovenia and Sweden) that have already ratified the MLI, and further demonstrating its commitment to the base erosion and profit shifting (“BEPS”) framework. The MLI is now due to enter into force in the UK on 1 October 2018 (being the first day of the month following the expiry of three calendar months after the deposit of the instrument of ratification) and will take effect: (i) for taxes withheld at source, on 1 January in the year following the relevant entry into force date; (ii) for all other taxes, for taxable periods beginning at least six calendar months (or such shorter period as may be agreed by the UK and the counterparty to the relevant double tax treaty (“DTT”)) after the relevant entry into force date; and (iii) for the mutual agreement procedure (“MAP”) and arbitration, for cases presented to the relevant tax authority on or after the relevant entry into force date.
As the date on which the MLI will enter into force will vary amongst different jurisdictions (depending on the date on which their instrument of ratification is deposited with the OECD), it is the later entry into force date (as between any two jurisdictions party to a DTT) that is used for determining when the MLI will take effect for the purposes of that DTT. For example, in determining when the MLI will take effect in relation to the UK and “Country X”, the relevant entry into force date would be the later of: (i) 1 October 2018 (being the date on which the MLI will enter into force in the UK); and (ii) the date on which the MLI enters into force in Country X.
The MLI is a BEPS-related initiative which facilitates the international implementation of certain BEPS-related measures, including hybrid mismatch rules, prevention of treaty abuse, prevention of the artificial avoidance of permanent establishments and improvement of dispute resolution mechanisms. The MLI is intended to transpose certain minimum standards in relation to each of these measures into existing DTTs, and effectively permits contracting jurisdictions to amend simultaneously all of their existing DTTs (to the extent the relevant counterparty has also signed up to the MLI), rather than making amendments on a much more cumbersome treaty-by-treaty basis. As of 29 June 2018, there are 82 signatories to the MLI.