Signing ceremony of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting

A ground-breaking development took place on 7 June 2017 in Paris with the commencement of the first signing ceremony of the Multilateral Convention on Tax Treaty Related Measures to Prevent BEPS (the MLI).

The MLI will apply alongside the existing treaties, modifying their application in order to implement the relevant BEPS measures, without requiring any further bilateral negotiations between the countries concerned. It will automatically amend all existing double tax treaties of which both parties are signatory countries to the MLI, introducing measures to prevent base erosion and profit shifting, including anti-abuse and anti-avoidance clauses. The issues that the MLI seeks to address include hybrid mismatches, treaty abuse, instances where permanent establishment status can be avoided, improving dispute resolution and arbitration.  The amendments will close loopholes in more than 2000 double tax treaties worldwide.

The deposit of the formal notifications of ratification by five jurisdictions is required for the MLI to enter into force. After a specified period has elapsed following the deposit of the fifth notification, the MLI will enter into force with regard to the first five jurisdictions. For countries which subsequently deposit their notification of ratification, the MLI will enter into force on the expiry of a specified period after the deposit of the notification. It will enter into effect with respect to a double tax agreement covered by the convention on the expiry of a specified period after the convention has entered into force with respect to both parties to the double tax agreement. The specified period varies for different provisions; for example, provisions relating to withholding taxes will take effect at the beginning of the calendar year after the last party has notified of its ratification.

At the time they signed the MLI, jurisdictions submitted a list of double tax agreements they intend to be covered, together with a preliminary list of their reservations and notifications in respect of the various provisions of the MLI. Cyprus intends to include all its existing double tax agreements.

It is likely that the changes to double tax agreements will start to take effect in 2019, though some agreements could be affected before then.