On 22 March, the fifth country (Slovenia) ratified the OECD’s Multilateral Instrument (MLI), so that it has now come into force from 1 July 2018, subject to introduction into law by the individual signatory nations.
In a related development, the UK has laid a draft Order in Council before Parliament to pave the way for the UK’s ratification of the MLI. In addition, HMRC have published a document setting out changes to the list of the UK’s covered tax agreements, reservations and notifications under the MLI reflecting new tax treaties entered into since June 2017. The related explanatory note states that the UK will only reserve against those provisions which are not part of the minimum standard that it considers unnecessary because of the adoption of the principal purpose test as a new condition to access treaty benefits. These unnecessary provisions include the broadening of the definition of permanent establishment in the MLI which the UK is not adopting.
The MLI will be introduced into UK treaties three months following the UK’s ratification of it, which is expected to be during this summer. The principal purpose test will then apply to relevant withholding tax claims from 1 January 2019.