The OECD made its end-November 2016 deadline to release the text of the multilateral treaty to give effect to the BEPS Actions which involve changes to tax treaties, see here. The 49 page treaty text, which is commonly referred to as the multilateral instrument or MLI, and 85 page explanatory statement (ES) contain substantive changes to existing tax treaties in a relatively small subset of provisions.
The objective of the MLI is to have a single instrument which a country can sign to update its suite of treaties by a single stroke, without having to re-negotiate each treaty individually. So, if Australia (or any other country) signs the MLI, potentially all its existing treaties could be amended in one place.
Hence this one instrument has to be flexible enough to effect amendments to over 3,000 treaties based on different treaty models, some containing the amending provisions already (eg, an arbitration clause), of varying scope and age, some with protocols, in a variety of languages, and between countries that have different views on just how much and which parts of the BEPS agenda they want to implement. That drafting challenge explains a lot about why the instrument is so obtuse.
The changes which the MLI would make are hedged around with elections, options and the possibility of reservations, which is why the text of the MLI manages to be double the length of a typical tax treaty, while perhaps leaving readers wondering exactly what it all means. (Before grappling with the details of these complexities, it is helpful to read the summary in ES pages 3-7.)
Treasury released a Consultation Paper (CP) on 19 December 2016 setting out how it is proposed that Australia react to the menu of choices on offer in the MLI with submissions due by 13 January 2017. It will be interesting to see how many submissions were received given this timing.
The MLI is already open for signature from 31 December 2016 and will not start to operate until five ratifications have been deposited with the OECD. In Australia’s case ratification will require the usual treaty review process and for a bill to pass through Parliament giving effect to whatever we sign up to. The CP indicates a target start date for the MLI in Australia of 1 January 2019, assuming sufficient ratifications by then, which in the light of the timing indicated in the MLI for coming into force and effect means passage of enabling legislation by mid-2018.
In the meantime Australia has to draw up a list of treaties it wants to be amended, sort through the
It is unlikely there will be any signatures on the MLI before the proposed signing ceremony in Paris in the week of 5 June 2017 back-to-back with the OECD Ministerial Council meeting when a sufficient number of high-profile politicians will be on hand to do the honours. The MLI provides for provisional notification of all reservations etc by countries at the time of signature and final notification at the time of depositing instruments of ratification.
For more on how and when the MLI will operate, the current likely Australian position on it and the potential impact of the new US President Click Here To Read More...
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