"It's very innovative, it's new and it's unprecedented" is how Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration at the OECD, described the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the "MLI"). Ireland along with 67 other countries signed the MLI on 7 June 2017. As indicated by Pascal Saint-Amans, this is an important development in international tax. It is the first time a multilateral convention has been agreed to update a series of bilateral treaties.
The effect of the MLI will be to incorporate new provisions agreed under the base erosion and profit shifting ("BEPS") project into many of Ireland's double tax treaties ("DTTs"). The key changes to Ireland's DTTs that will be made under the MLI are:
adoption of a principal purpose test ("PPT"); adoption of a tie-breaker test based on mutual agreement to determine tax residence for dual resident entities; and adoption of a number of measures, including mandatory binding arbitration, to resolve DTT disputes more efficiently. Although it is unclear at this stage when the changes will apply from, the very earliest date from which the changes are likely to apply is 1 January 2019. Perhaps of most interest, are Ireland's reservations to the MLI. Ireland will not:
adopt the changes to the permanent establishment ("PE") definition designed to treat commissionaires as PEs; adopt the narrower specific activity exemptions within the PE definition. What Irish DTTs will be affected by the MLI?
Ireland has agreed 73 DTTs (of which 72 are in effect). Ireland has confirmed that it will treat 71 of those DTTs as 'Covered Tax Agreements'. If the DTT partner also opts to treat the Irish DTT as a 'Covered Tax Agreement', that DTT will be amended by the MLI. If a DTT partner does not sign the MLI (the current US position) or does sign the MLI but does not opt to treat the Irish DTT as a 'Covered Tax Agreement' (the current Swiss position), no amendments will be made to that DTT under the MLI.
It has been bilaterally agreed not to include the Ireland / Netherlands DTT as a 'Covered Tax Agreement' as that DTT is currently being renegotiated.
A complete list of Ireland's DTTs is available here along with confirmation of which countries have indicated that they will treat the Irish DTT as a 'Covered Tax Agreement'.
What happens if Ireland adopts a change under the MLI and the DTT partner does not?
In that case, the...