Tax Alert

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Multilateral Convention enters into force in respect of New Zealand

Tax Alert - November 2018

Veronica Harley & Nandita Rao

On 1 October 2018, the Double Tax Agreements (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting) Order 2018 (the MLI) entered into force in respect of New Zealand.

By way of background, New Zealand signed the convention on 7 June 2017 and deposited its final MLI position on 27 June 2018, which set out the 37 tax treaties it wished to be covered by the MLI. Under article 34, the convention enters into force on the first day of the month following the expiry of a period of three calendar months beginning on the date of deposit. For New Zealand, the entry into force date is 1 October 2018.

However, for a particular double tax treaty to be covered by the MLI, the MLI for the other treaty party also must have entered into force. In the case of New Zealand, other signatories with which New Zealand has a double tax agreement (DTA) and whose respective MLI also entered into force on 1 October 2018 include Poland, Sweden and the United Kingdom.

Furthermore, the MLI will enter into effect to modify each bilateral DTA on a phased-in basis, once both parties to the DTA have signed and ratified the MLI.

There are specific dates for when the MLI will enter into effect in accordance with Article 35 as follows:

  1. For withholding tax, it will apply where the event giving rise to the tax occurs on or after 1 January of the next calendar year beginning on or after the latest date on which the MLI enters into force for each of the parties to the DTA (i.e. 1 January 2019 for the above DTAs).
  2. For income tax, it will apply to taxable periods beginning on or after a six-month period from the latest date on which the MLI enters into force for each of the parties to the DTA (i.e. taxable periods beginning on or after 1 April 2019 for the above DTAs).

Following entry into effect, interpreting the impact of the MLI on a DTA will be a matter of determining and reconciling the respective MLI reservations, notifications and choices made by each country to determine whether an operative provision of the MLI is activated and then how that provision will apply to a particular DTA provision.

It is also of note that Australia, France and Japan deposited their respective MLI instruments on 26 September 2018, so these MLIs will enter into force on 1 January 2019. In the case of these jurisdictions, the entry into effect dates are 1 January 2019 for withholding taxes and for income tax, taxable periods commencing on or after 1 July 2019.

The entry into effect date for a particular covered tax agreement will vary as it depends on the dates of entry into force for each of the countries.

For the latest list of which countries have deposited their final MLI instrument see Status as of 27 September 2018.

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