MLI set to facilitate measures against unfair tax competition from

29. June 2018

Austria, Poland and Slovenia are forerunners in the fight against unfair tax competition. These three countries will enable the MLI (Multilateral Instrument) to enter into force from 01/07/2018. Read more.

The fight against base erosion and profit shifting – i.e. against unfair tax competition – was actually taken up by the OECD/G20 a few years ago. But the measures developed will only be able to have an impact once they are implemented globally. The Multilateral Instrument (MLI) will play a crucial role in this.

For the MLI to enter into force generally it needed to be ratified by at least five states as a first step.

1. Central role of CEE states

What is exciting is that no fewer than three CEE states are among the first states in the world to have ratified the MLI so far and therefore to have contributed to the MLI’s entry into force. Austria has been joined here by Poland and Slovenia.

It is also fascinating that the MLI has already been ratified by two states previously known as tax havens, namely Jersey and the Isle of Man.

And one thing is also evident when looking at the ratifications of the MLI: there are major global and regional differences in terms of how seriously and how quickly states are taking up the fight against unfair tax models.

2. The next milestones

With the deposit of an instrument of ratification by Slovenia as the fifth state in the world at the end of March, the MLI can now enter into force from 01/07/2018.

For Austria this means that the double taxation agreements with Slovenia and Poland will apply in the form modified by the MLI from 2019 onwards.

The remaining 36 Austrian agreements, which are also to be modified by the MLI – including those with Hong Kong, China, India, Russia and the EU states – will then be adapted depending on ratification by the respective contract partners.

3. What does this mean for international companies?

The changes to Austria’s agreements will be small but subtle. One key point will be the introduction of the “principal purpose clause”. In future, the tax office will deny the application of an agreement if one of the main reasons for the chosen structure is to obtain a tax advantage. There should also be improvements in international tax conflicts.

TPA Newsletter August 2018_EN
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