MLI: 67 countries sign new tax treaty

9 June 2017

On 7th June, 67 countries – including all EU member states – signed the so-called Multilateral Instrument (MLI). The USA refused to sign. Mauritius, Switzerland and the UK signed, but have taken different positions on certain elements.

Supporters of the MLI claim that it will increase the proceeds from taxes by at least $100 billion.
Tax advisors may need to check how the agreement will affect the tax treaties their clients use, and whether there is a need to look into alternative ways of structuring.

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Once a tax treaty has been listed by the two treaty partner countries, the treaty becomes an agreement to be covered by the MLI. The Organisation for Economic Co-operation and Development (OECD) claims that these 67 countries have signed over 2,300 tax treaties in total.

The MLI provides these countries flexibility regarding the tax treaties they have signed. For example they may choose which existing tax treaties they would like to modify to prevent Base Erosion and Profit Shifting (BEPS) in respect of treaty abuse, improvement of dispute resolution, hybrid mismatch arrangements and the strengthened definition of permanent establishments. As a result the MLI allows countries to tackle structures with so-called letterbox companies that pay interest, royalties and dividends.

The OECD will analyse the data from the various countries’ regarding their MLI positions and expects to launch a public online matching tool. The first part of the tool will be made available as soon as possible.

Author: Corney Versteden, HLB Global Chairman, Partner at HLB Van Daal

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