On June 7, 2017, Japan signed the "Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting" ("MLI"). The MLI is a part of the OECD/G20 base erosion and profit-shifting ("BEPS") package to counter tax avoidance by artificially shifting profits and is intended to be an implementation of the tax treaty-related measures proposed in the BEPS project that is designed for a multilateral, rather than a conventional bilateral, framework. Sixty-eight jurisdictions (including Japan) have signed the MLI, although the United States is not included as a signatory.

Each party to the MLI may generally: (i) identify which existing tax treaties will be covered by the MLI (Japan so far has designated tax treaties with 35 jurisdictions to be covered by the MLI); and (ii) reserve the right to have certain provisions in the MLI not apply to the existing tax treaties identified in (i) above. The provisions in the MLI may be used as alternatives for the provisions in an existing tax treaty only when both contracting jurisdictions of such tax treaty elect to do so via (i) and (ii) above.

Accordingly, one must look at each country's decisions with respect to (i) and (ii) above in order to see how each existing treaty will be affected by the MLI.

The following are some of the MLI provisions that Japan so far has not reserved the right to exclude:

Article 3: Transparent Entities. Income derived by an entity that is treated as fiscally transparent in either contracting jurisdiction shall be treated as income of a resident of a contracting state but only to the extent that the income is treated, for purposes of taxation by that contracting jurisdiction, as the income of a resident of that contracting jurisdiction.

Article 7: Prevention of Treaty Abuse. A treaty benefit is not granted in principle if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of a transaction.

Articles 12 and 13: Artificial Avoidance of Permanent Establishment Status. For instance, an enterprise is deemed to have a permanent establishment if, among others, a person acting in a contracting jurisdiction on behalf of that enterprise plays the principal role leading to the conclusion of contracts, notwithstanding the lack of authority to conclude contracts on behalf of that enterprise.

The MLI will enter into force upon the expiration of a period of time following the deposit of the fifth instrument of ratification, acceptance, or approval. The MLI will allow for a simultaneous and efficient implementation of the treaty-related BEPS measures to come to fruition in a multilateral context. Considering the possible impact of the MLI, any enterprise engaging in transactions involving a covered jurisdiction should consider how to respond to the MLI, including possible changes to the transaction structures if necessary.