Action Plan on base erosion and profit shifting (BEPS)
On 7 June 2017, the Commissioner of China’s State Administration of Taxation (SAT) signed, on behalf of Hong Kong, the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which aims to close loopholes in the current bilateral tax treaties and lessen the opportunity for tax avoidance.
In implementing the Multilateral Instrument, Hong Kong has taken a pragmatic approach, opting into the provisions of the Convention that represent the minimum standards including the principal purpose test for preventing treaty abuse and the requirement for allowing a minimum three-year period for a person to present its case for Mutual Agreement Procedure (MAP). Hong Kong has opted out of other provisions that are not mandatory such as provisions addressing hybrid mismatches and changes to combat artificial avoidance of a permanent establishment.
Ukraine: The Ministry of Finance publishes a route map for the implementation of the BEPS Action Plan
On 16 May 2017, the Ministry of Finance published a route map for the implementation of the BEPS Action Plan and presented it to experts.
Minister of Finance Oleksandr Danyliuk said that the government must ensure that profit tax is collected where added value is generated and where business activity is pursued. They will be resisting deliberate profit shifting aiming to evade taxes in Ukraine.
On January 1, 2017, Ukraine joined the Extended Cooperation Program of the OECD and obliged itself to implement the so-called minimum standards of the BEPS Action Plan. The implementation of the minimum standards will enable Ukraine to effectively tackle aggressive tax planning, base erosion and profit shifting.
Mexico has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”) on 7th June 2017. The signing of the MLI will modify over 1,100 international treaties by more than 68 countries aimed to avoid double taxation and tax evasion, including those treaties previously signed by Mexico. The Convention is a key outcome of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, which aims to offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. The OECD’s goal is to lessen tax avoidance by Multinational Groups emerged from forceful International Tax and Transfer Pricing positions, which, as per OECD estimations, ranges from 100 to 240 billion dollars every year.
The signing of the MLI effectively concludes the objective put forward by Action 15 of the BEPS Plan, and is without a doubt a watershed moment relating to International Tax. It is accordingly fundamental for Multinational Groups to assess the adequacy of their Transfer Pricing and International Tax policies to the new worldwide condition.
The Government on 14th of June 2017, approved the signing by Nigeria of the Multilateral Instrument (MLI) to implement into bilateral tax treaties the tax treaty-related measures arising from the OECD / G20 BEPS Project to tackle base erosion and profit shifting. First signing ceremony held on 7th of June 2017 in Paris. That time, eight countries, including Nigeria formally expressing their intent to sign.
The BEPS recommendations combat tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. The multilateral instrument will enable countries to adjust their bilateral tax treaties to include BEPS treaty-related recommendations without having to renegotiate each bilateral treaty.
The Ministry of Finance announced in a statement on 7 June 2017, that Mauritius will sign the OECD Multilateral Agreement to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) by the end of June 2017. The agreement will amend bilateral tax treaties to include measures recommended by the OECD project on BEPS.
About 70 countries at all levels of development have signed this Multilateral Instrument (MLI) at the OECD Centre in the presence of Secretary-General OECD. A number of jurisdictions have also expressed their intention to sign the MLI as soon as possible and other jurisdictions are also actively working towards participation in the multilateral instrument.
With regards to Double Taxation Avoidance Agreements that will not be covered by the Multilateral Convention, discussions will be held on a bilateral basis with the concerned countries to ensure the country’s compliance with the BEPS recommendations while safeguarding the legitimate interests of Mauritius.
Previously in June 2015 Mauritius also signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, jointly developed by the Council of Europe and the Organization for Economic Cooperation and Development (OECD). Mauritius is equally a member of the Early Adopters Group committed to the early implementation of the Common Reporting Standard on the automatic exchange of financial account information.
Moreover, the country was the first in Africa to have signed up to the Intergovernmental Agreement with the United States for the implementation of the Foreign Accounts Tax Compliance Act.
In view of further supporting its pledge as a cooperative IFC, Mauritius has actively participated in the Ad-Hoc Group set up by the OECD to work on the drafting of the Multilateral Instrument as recommended under Action 15 of the BEPS Report. More recently, the country equally joined the Inclusive Framework to implement the BEPS Recommendations and the new initiative on the exchange of Beneficial Ownership information.
The Netherlands signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”) on 7th June 2017. About 70 Ministers and other high-level representatives participated in the signing ceremony at Paris. Eight other countries and jurisdictions have expressed their intention to sign the MLI and more countries are expected to sign by the end of this year.
The Convention enables all signatories, inter alia, to meet treaty-related minimum standards that were agreed as part of the Final BEPS package, including the minimum standard for the prevention of treaty abuse under Action 6. The MLI provisions will generally take effect concerning to withholding taxes on the 1st day of the calendar year following the last date on which the MLI enters into force for each of the two Contracting Jurisdictions and six months as of this date with respect to all other covered taxes.
On 7 June 2017 the Luxembourg Finance Minister Pierre Gramegna signed, on behalf of Luxembourg, the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which aims to close loopholes in the current bilateral tax treaties and lessen the opportunity for tax avoidance.
The agreement is designed to prevent the abuse of tax arrangements among participating countries but leaves it up to the respective country whether it wants to apply every article in the treaty. Luxembourg has taken full advantage of this option and added restrictions to 16 of the 39 articles in the instrument. The details of those reservations fill 71 pages.
Once Luxembourg and its co-signatories ratify the Multilateral Convention, Luxembourg’s tax treaties will be amended in several important areas. Under the Convention, Luxembourg and its treaty partners also each commit to improving and speeding up processes for dealing with cross-border tax disputes. In relation to tax disputes Luxembourg has committed to mandatory binding arbitration.