Signature of the MLI: Options chosen & reservations made by Luxembourg
On 7 June 2017, over 70 Ministers and other high-level representatives from jurisdictions around the world participated in the signing ceremony of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting known as the "Multilateral Instrument" or "MLI". A number of other jurisdictions have also expressed their intention to sign the MLI as soon as possible (e.g. by the end of June for Mauritius) and other jurisdictions are actively working towards signature.
The text of the MLI was adopted (in English and French) on 24 November 2016 further to negotiations involving over 100 countries and jurisdictions under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.
The MLI enables the transposition of results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. It modifies the application of thousands of bilateral tax treaties concluded to eliminate double taxation and implements agreed minimum standards to counter treaty abuse and to improve dispute resolution mechanisms, while providing flexibility to accommodate specific tax treaty policies. Treaty measures that are included in the new multilateral convention tackle hybrid mismatch arrangements, treaty abuse, permanent establishment, and mutual agreement procedures, including an optional provision on mandatory binding arbitration, which has been taken up by 25 signatories (including Luxembourg) at the time of signature.
Although some of the measures are mandatory (the minimum standards mentioned above), others are subject to choices and options by signatory jurisdictions. You will find hereunder a brief summary of the options chosen / reservations made by Luxembourg (are only addressed articles or paragraphs which indeed require a choice to be made). This is based on the BEPS MLI Luxembourg document published by the OECD and which contains a provisional list of expected reservations and notifications to be made by Luxembourg.
The MLI will swiftly implement the tax treaty measures developed in the course of the OECD/G20 BEPS Project via the modification of existing bilateral tax treaties. The first modifications to Covered Tax Agreements are likely to become effective in the course of 2018. The timing of entry into effect is linked to the completion of the ratification procedures in the jurisdictions that are parties to the covered tax treaty. Indeed, the next step is for the signatory jurisdictions to complete their domestic process to ratify the MLI. The MLI will enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of deposit of the fifth instrument of ratification, acceptance or approval. For each signatory ratifying, accepting, or approving the MLI after the deposit of the fifth instrument, the MLI shall enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by such signatory of its instrument of ratification, acceptance or approval.
The OECD acts as depositary of the MLI. The position of each signatory under the convention is already available on the OECD website. By the end of this year, a database and additional tools will be provided by the OECD (on its website) in order to facilitate the application of the convention by taxpayers and tax administrations.