On 7 June 2017, the multilateral instrument (“MLI”) was signed covering 68 jurisdictions, including the Netherlands, Belgium, Luxembourg and Switzerland. The MLI should accelerate the implementation of key BEPS measures into a large number of bilateral tax treaties. We prepared an overview showing whether the bilateral tax treaties of the above mentioned four jurisdictions with their most important treaty partners are so-called ‘Covered Tax Agreements’ (“CTA”) to which the MLI applies.
Moreover, an overview sets out the impact of the so-called principal purpose test (“PPT”) of article 7 of the MLI (“MLI PPT”) on those CTAs. The PPT is an anti-abuse provision that should deny application of treaty benefits in certain situations.
A number of outcomes regarding the PPT are possible between treaty partners:
- PPT appliesExisting provisions in the CTA that already contained a principal purpose test are replaced with the MLI PPT or, in the absence of existing provisions, the MLI PPT is added to that CTA.
- PPT + DR appliesSame as ‘PPT applies’, but both jurisdictions have opted for the discretionary relief clause ("DR") of article 7(4) of the MLI. The DR provides discretion to the authorities of the treaty parties to allow application of tax treaty benefits in certain situations where the PPT is applicable.
- PPT applies, but intended as interim measure by treaty partnerCertain countries have expressed an intention to negotiate limitation-on-benefits (“LOB”) provisions with their treaty partners but will apply the MLI PPT in the meantime. None of the Netherlands, Belgium, Luxembourg and Switzerland has expressed such intention.
- PPT applies to the extent existing CTA provisions are incompatibleIf there is an existing provision in the CTA that contains a principal purpose test but that has not been properly notified to the OECD by both treaty partners, the MLI PPT is added to the treaty and supersedes the existing CTA provisions to the extent the latter are incompatible with the MLI PPT.
In certain instances there is no bilateral tax treaty in place between the Netherlands, Belgium, Luxembourg or Switzerland and the other jurisdiction. In such cases, the overview shows ‘No DTT’.