MLI

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Ireland deposits its instrument of ratification for the MLI with the OECD

On 29 January 2019, Ireland deposited its instrument of ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘MLI’) with the OECD, together with a list of reservations and notifications.

The MLI seeks to swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises. The MLI is restricted solely to tax agreements and does not affect any provision of domestic law.

In order for the MLI to modify tax agreements, the key events are as follows:

  • An instrument of ratification must first be deposited with the OECD, 
  • The MLI must then enter into force,
  • It must then enter into effect for both Ireland and the contracting jurisdiction. 

It is expected that the MLI shall enter into force with respect to Ireland on 1 May 2019, which is the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by Ireland of its instrument of ratification. 

The provisions of the MLI shall have effect in Ireland with respect to a Covered Tax Agreement (‘CTA’):

  • with respect to taxes withheld at source (‘WHT’) on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after the latest of the dates on which the MLI enters into force for each of the Contracting Jurisdictions to the CTA;
  • with respect to other taxes, the date when the MLI enters into effect depends on: (i) the timing of the MLI ratification by the Contracting Jurisdictions to a CTA, (ii) the Contracting Jurisdictions’ position on the relevant MLI articles and (iii) the duration of the taxable period in each Contracting Jurisdiction.

The provisions of the MLI concerning WHT shall become effective as of 1 January 2020 to the extent that Contracting Jurisdictions to CTAs with Ireland have deposited their instruments of ratification of the MLI with the OECD prior to 1 October 2019.

What is the MLI?

The Multilateral Instrument (MLI) was introduced by the OECD to implement Minimum standard’ changes to the functioning of existing double tax conventions in the areas of treaty abuse, mutual agreement procedures and treaty preambles will be implemented through the Convention and, depending on the reservations and notifications made by each party, optional changes to modify tax treaties in respect of permanent establishments (taxable presence), transparent entities, residency tie-breakers, double tax relief, minimum shareholding periods, capital gains derived from immovable property and a jurisdiction’s right to tax its own residents will also be facilitated.

When will the MLI modify double tax treaties?

In order to determine if Ireland’s tax treaty with another jurisdiction will be modified, the following steps need to be considered:

Step 1: Is the MLI in force for both Contracting Jurisdictions to the tax agreement?

The MLI will be in force on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by the relevant jurisdiction of its instrument of ratification. To find out the dates of each country’s deposit of an instrument of ratification, check the OECD portal here.

If the answer to Step 1 is Yes, proceed to Step 2. If the answer is No, the MLI does not apply.

Step 2: (i) Do both Contracting Jurisdictions list the tax agreement in their MLI positions as an agreement to be covered by the MLI?

In order to determine if contracting jurisdictions list the tax agreement in their MLI positons as an agreement to be covered by the MLI, check the OECD portal here, and click on the hyperlinked date in the ‘Signature Column’. Article 2 of each jurisdiction’s document of ‘Status of List of Reservations and Notifications at the Time of Signature’ names each tax agreement that is covered.

If the answer to Step 2 (i) is Yes, proceed to Step 2 (ii). If the answer is No, the MLI does not apply.

Step 2: (ii) Is the tax agreement in force?

If the answer to Step 2 (ii) is Yes, proceed to the next question below. If the answer is No, the MLI will be a covered tax agreement after it enters into force.

How do I know what will change in each treaty?

Each Contracting Jurisdiction is allowed to make a reservation unilaterally, while the effect of reservation applies symmetrically (see Article 28(3)). Accordingly, a reservation made by a Contracting Jurisdiction with respect to a provision generally blocks the application of the provision, whether or not the other Contracting Jurisdiction has also made the reservation.

To consider if a contracting jurisdiction made any reservations, one needs to consider the document ‘Status of List of Reservations and Notifications at the Time of Signature’ for each jurisdiction. To examine each jurisdiction’s list of reservations, check the OECD portal here, and click on the hyperlinked date in the ‘Signature Column’ for each jurisdiction.

What are the major dates that are relevant for Ireland?

The 29 January 2019 is an important date for Ireland as it begins the process of the MLI entering into force and then into effect.

Entry into Force: As Ireland deposited the instrument of ratification of the MLI on 29 January 2019, the MLI enters into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by Ireland of its instrument of ratification. This means the MLI enters into force on 1 May 2019.

Entry into Effect: WHT: As the MLI will enter into force on 1 May 2019, the MLI will enter into effect for withholding taxes on the first day of the next calendar year that begins on or after the latest of the dates on which the MLI enters into force for each of the Contracting Jurisdictions to the CTA. This means the MLI will enter into effect on 1 January 2020 for withholding taxes.

Entry into Effect: Other Provisions: As the MLI will enter into force on 1 May 2019, the MLI will enter into effect for the other provisions for taxable periods beginning on or after the expiration of a period of six calendar months from the latest of the dates which this Convention enters into force for each of the Contracting Jurisdictions to the CTA. This is however subject to exceptions and could come into effect earlier. However, the most likely scenario at this time is that for other provisions, the MLI will enter into effect on 1 January 2020.

Should you have any questions on the MLI, please reach out to your usual Deloitte contact.

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