On June 7, 2017, the formal signing ceremony of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “Multilateral Instrument” or “MLI”) took place. Sixty-eight jurisdictions have signed the MLI, with another nine jurisdictions signing a letter indicating their intent to sign the MLI.
The MLI is one of the outcomes of the OECD/G20 Project to tackle Base Erosion and Profit Shifting (the “BEPS Project”). Specifically, Action 15 of the BEPS Project focused on the development of an MLI to enable countries to efficiently modify their bilateral tax treaties to implement certain BEPS measures. What could otherwise take decades to accomplish (i.e., separately renegotiating 3,000 bilateral income tax treaties to accommodate BEPS), the MLI does with a single multilateral instrument.
Although the United States has not signed the MLI, the MLI nevertheless may dramatically impact many inbound structures utilized by foreign investors in the United States, as well as many outbound structures used by U.S.-based multinationals. For example, the possible inclusion of an anti-triangular provision from the MLI in a particular treaty could prevent treaty benefits from being available (and thus result in increased withholding tax) where payments are made to a third-country permanent establishment (PE) and that PE is not subject to a sufficient rate of tax. Many existing structures also could be adversely affected by the inclusion of certain new elimination of double taxation provisions contained in the MLI. Under these provisions, an exemption may be denied in the home country for income that “may be taxed” in the treaty partner country, with a credit being provided instead for the tax paid on such income in the other country (which may often be zero or a de minimis amount).
Despite these possible changes, as further discussed in the article linked below, a number of interesting planning opportunities appear to remain.