Multilateral Convention ratified by the Netherlands

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On March 5, 2019, the Upper House (Eerste Kamer) of the Dutch parliament approved the Multilateral Convention to implement tax treaty-related measures to combat base erosion and profit shifting (also known as the Multilateral Instrument or MLI). Therefore, the ratification process is finalized and the Netherlands must deposit the ratification instrument with the OECD. The MLI may affect existing Dutch tax treaties and its provisions will enter into force as of 1 January 2020 if the Netherlands deposits the ratification instrument before April 1, 2019.

Positions of the Netherlands

The MLI is a multilateral tax convention designed by the OECD to combat base erosion and profit shifting (BEPS) by multinational enterprises to swiftly implement tax treaty-related BEPS measures and will be applied alongside the existing bilateral tax treaties and effectively changes these treaties.

The MLI entered into force on July 1, 2018, but the application to tax treaties of the jurisdictions that signed the MLI depends on the status of the domestic ratification process of the contracting jurisdictions.

The Netherlands submitted its MLI position during the signatory ceremony on June 7, 2017, listing its provisional reservations/notifications and included 82 tax treaties that it wishes to be covered by the MLI as Covered Tax Agreement (CTA).

The following categories of provisions in the MLI can be distinguished: (i) minimum standards, (ii) options (opt-in) and (iii) reservations (opt-out). The Dutch positions are as follows: with respect to the minimum standards, the preambles of the CTAs will be amended to clarify that the CTAs were concluded to eliminate double taxation without creating opportunities for non-taxation, a principal purpose test applies to all provisions in the CTA and a mutual agreement procedure will apply in tax disputes. The Netherlands did also opt-in for mandatory binding arbitration, but opted-out for the provision regarding the artificial avoidance of a permanent establishment status through commissionaire arrangements.

Impact on Dutch bilateral tax treaties

When the domestic ratification process has been finalized by both contracting jurisdictions, the MLI modifies the CTAs and has effect as of the first day of the next calendar year for withholding taxes (e.g. interest, dividends) and as of the new taxable period starting after a 6-month period for all other taxes.

If the Netherlands deposits the ratification instrument with the OECD before April 1, 2019 (which is currently expected) the provisions of the MLI could modify the CTAs as of January 1, 2020.

We have compiled an overview that demonstrates the impact of the entry into force of the MLI with respect to Dutch CTAs. Whether your company is affected by the entry into force of the MLI can be assessed according to the below overview that is divided in the following categories (a) CTAs that are impacted by the MLI, (b) CTAs that are impacted by the MLI when the ratification process in the contracting jurisdiction is finalized and (c) bilateral tax treaties that are not impacted by the MLI.

 A) CTAs that are impacted
 Australia  Lithuania  Slovak Republic
 Austria  Luxembourg  Slovenia
 Finland  Malta  Sweden
 France  New Zealand  United Kingdom
 Israel  Serbia   
 Japan  Singapore  
B) CTAs that are not yet impacted
Argentina Hungary Pakistan
Armenia Iceland Panama
Barbados India Portugal
Canada Indonesia Qatar
China (People’s Republic) Italy Romania
Croatia Kazakhstan Russia
Czech Republic Korea Saudi Arabia
Egypt Kuwait South Africa
Estonia Latvia Tunisia
Georgia Malaysia Turkey
Germany  Mexico United Arab Emirates
Greece Nigeria  
Hong Kong (China) Norway  
C) No CTAs
Belgium Ireland Ukraine
Bulgaria Poland Uruguay
Curacao Spain  

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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