As a result of a new legal instrument, changes to the allocation of taxing rights and the introduction of new anti-avoidance rules mean that, once ratified, businesses and individuals may no longer qualify for double taxation relief on a range of cross-border transactions and activities. Taxable presences, compliance burdens, and tax liabilities could increase, and the uncertainty around application of the new standards may increase the instances of disputes. However, the instrument may help resolve cross-border tax disputes more quickly.
On 7 June 2017, 68 territories signed The Multilateral Convention To Implement Tax Treaty-Related Measures To Prevent Base Erosion And Profit Shifting (MLI). They also lodged with the OECD their provisional decisions on various choices available under the MLI in amending the effect of existing bilateral and other double tax treaties. The impact will depend on a degree of ‘matching’ those choices and with a suitable lag time after the parties to a particular treaty have ratified their positions.
The MLI introduces considerably more complexity and uncertainty into the international tax system. The choices available to each territory are extensive and, at least initially, matching the approaches of particular territories may be challenging. The OECD’s role is to publish information on territories’ choices, irrespective of whether the territories do so themselves. We have seen some helpful material already, though any additional assistance from the OECD may come later. Furthermore, businesses may want to think through the consequences related to particular fact patterns.
We refer to a PwC Central Tax Policy Leadership Bulletin for further information in this respect, which you can read here.