On 29 June 2018, the UK became the ninth jurisdiction to deposit with the OECD its instrument of ratification of the BEPS8 project’s “multilateral instrument” (MLI). This follows the making, on 23 May 2018, of the Double Taxation Relief (Base Erosion and Profit Shifting) Order 20189 which implemented the MLI in the UK.
The MLI is designed to implement those BEPS measures that impact on existing double tax treaties (BEPS Action 15). Arguably the most ambitious aspect of the entire BEPS project, it is anticipated by the OECD that the MLI will provide for the amendment of approximately 2,000 of the 3,000 tax treaties currently in existence, without the need for each treaty to be individually amended.
The MLI will not actually directly amend the existing tax treaties of participating states, but will sit alongside the relevant treaty modifying it for the purpose of implementing those BEPS measures which impact on existing tax treaties (for example Action 2 (hybrid mismatches), Action 6 (preventing treaty abuse) and Action 7 (preventing PE status avoidance). The MLI includes provisions that a state may opt out of, or choose an alternative option.
The MLI will come into force in the UK on 1 October 2018, but in many cases the changes made by the MLI do not have effect immediately. For withholding tax purposes, the changes take effect from 1 January 2019. For income tax and corporation tax purposes, the changes take effect from April 2019. However, if the counterpart jurisdiction to a relevant treaty has not yet (by those dates) ratified the MLI, then the changes shall take effect for the purposes of such treaty from such later date at which the counterpart jurisdiction deposits with the OECD its instrument of ratification of the MLI.
The OECD press release can be viewed here.