On 6 November 2020 the Bundesrat (the upper house in the German parliament) gave its approval to ratifying the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, also known as the multilateral instrument or MLI.
The MLI helps countries to combat base erosion and profit shifting (BEPS) by enabling them to quickly amend their bilateral tax treaties to incorporate measures recommended by the OECD/G20 BEPS project. The amendments provided for in the MLI can help to combat treaty abuse, strengthen dispute resolution and prevent the artificial avoidance of permanent establishment status.
The members of the Inclusive Framework on BEPS, including the signatories of the MLI, have committed themselves to keeping the BEPS minimum standards that include the treaty related standards on treaty abuse and the improvement of dispute resolution.
The ratification process will be completed when the President signs the relevant legislation and it has been published in the gazette. Germany can then deposit its instrument of ratification to bring the measures into force. The changes will enter into force for the bilateral tax treaties that Germany has decided will be subject to amendment under the MLI (the covered agreements).
Germany has revised its list of covered agreements to include fewer treaties in the list that will be subject to amendment under the MLI. The provisional list of bilateral tax treaties previously submitted by Germany as covered agreements under the MLI included 35 agreements, but only 14 agreements are included under the draft law. A number of tax treaties including those with China, Denmark, Ireland, Israel, Korea, Mauritius, Netherlands, Russia and the USA are not included as covered agreements under the draft law. The treaty with India was not included in the provisional list or in the draft law.
The provisions of the MLI would normally enter into force in relation to the amendments to a tax treaty from the first day of the month after a period of three months from the date that both parties to the agreement have deposited their instruments of ratification.
With regard to the effective date for amended agreements, Germany has opted for a reservation under the MLI that provides for an amended tax treaty to become effective only after it has deposited a relevant notification that its internal procedures have been completed to allow the entry into effect of the MLI for a specific covered agreement.