On 7 June 2017, an official ceremony of signing  the  Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (abbreviated name: MLI) was held in Paris.

The Convention is the outcome of OECD works under measure 15 BEPS („Action 15: Multilateral Instrument”) and it aims to implement smoothly and efficiently the solutions resulting from other BEPS measures, whose objective is to prevent aggressive tax planning through modification and tightening the agreements on avoiding double taxation through one document only, i.e. the Convention, without the need of arduous and time consuming renegotiations of each agreement separately by its parties. An estimated number of agreements whose provisions are to be subject to amendments as a result of signing the Convention by the first 68 countries is approximately 1,100. Poland reported 78 agreements to be subject to the Convention.

It was determined that the Convention could modify application of the agreements which it covers in many ways: a provision of the Convention may be applied only in the place of an existing contractual provision, it may partly modify an existing provision, or it may be added to the agreement (if the agreement has not governed the specific issue yet.)

The scope to which the Convention modifies the specific agreement on avoiding double taxation depends on the position taken by the specific country and detailed provisions of the Convention.

In practice, this means that if one of the countries being a party to the specific agreement on avoiding double taxation reported to be covered by the Convention by the both countries, makes an objection to any of the provisions of the Convention, then such a provision will not affect the applicable wording of the agreement. The final form of arrangements between the parties will be also affected by options selected by specific countries, as in some cases the Convention leaves an option to be selected by the parties. Due to a complex manner of determining modifications in specific agreements (so far, each time positions taken by specific countries should be compared), OECD is working on preparing a tool which will facilitate application of the Convention in specific agreements  („MLI Toolkit”).

The Convention is to introduce several modifications, mainly in the following areas:

• abuse of contractual provisions on avoiding double taxation,

• taxation of dividends,

• capital profits from selling shares in real property companies,

• emergence of taxable permanent establishments,

• procedures of settling disputes.

What is important, Poland - by signing the Convention - also made a number of objections relating, among others, to emergence of taxable permanent establishments. Details of the position taken by Poland will be presented in the next newsletter.

Countries being the Convention signatories will ratify it pursuant to their national regulations. The Convention will become effective 3 months after its ratification by the fifth consecutive country.

Barbara Otrzonsek, tax consultant, ATA Finance