On Friday 24 August 2018 (the same day Australia got a new Prime Minister) the Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 gained Royal Assent as Act No. 83 of 2018 (having passed the Lower House on 14 August 2018 and the Senate on 16 August).
The effect of this Bill will be to amend the International Tax Agreements Act 1953 (Agreements Act), to give the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘Multilateral Convention‘ or ‘MLI‘) the force of Law in Australia.
Technically, the Bill is very simple.
- First, it defines the ‘Multilateral Convention’ in the terms set out above. This is s3AAA(1) of the Agreements Act. This is is in Schedule 1, Part 1, Item 1 of the Bill.
- Second, it includes the Multilateral Convention, in s5 of the Agreements Act, which is the central provision giving the listed agreements force of law in Australia – in accordance with their tenor. This is in Schedule 1, Part 1, Item 2 of the Bill. Hitherto, all the listed agreements have been bilateral. This is the first ‘multilateral’ agreement to have been given the force of law in the Agreements Act.
APPLICATION of MLI – The Bill does not even have complicated application provisions (simply taking effect on the day it receives Royal Assent). Rather, it is the text of the Multilateral Instrument provides the application provisions (Articles 34 & 35).
- The MLI states that it must first enter into ‘force‘ for Australia. This will be a certain time after Australia deposits an instrument of ratification, with the Secretary General of the OECD (certifying that it has been legislated). It then comes into force, on the first day of the calendar month, that is at least 3 months, after Australia deposits its ‘instrument of ratification’.
- Once a similar process has occurred for a relevant partner jurisdiction, the MLI will (where applicable), vary the relevant bilateral treaty, as follows:
- for withholding tax: the variations will affect amounts paid, or deemed to be paid, to a non-resident – on or after the 1 January, that occurs next, after the MLI ‘entered into force’ in both Australia and the relevant partner jurisdiction;
- for all other taxes: the variations will affect income, profits or gains of an income year that begins at least 6 months after the MLI ‘entered into force’ in both Australia and the relevant partner jurisdiction;
- the mutual agreement procedure and mandatory binding arbitration: variations will apply immediately after the MLI ‘entered into force’ in both Australia and the relevant partner jurisdiction.
Draft legislation was released in early February 2018 (see related TT Tax Month article).
The terms of the MLI, itself, were covered in the TT Tax Month Article, above. The main parts of the MLI are separated into provisions governing hybrid mismatches (BEPS Action 2); treaty abuse (BEPS Action 6); avoidance of permanent establishment status (BEPS Action 7); and improving dispute resolution and arbitration (BEPS Action 14).
Study questions (answers available)
- Will the effect, of this Bill, be to give the MLI the force of law, in Australia?
- Will this be done by including it in the Income Tax Assessment Act 1936?
- Does the Bill contain the provisions about when the MLI will enter into force?
- Will the MLI then be in force, 3 months after the Bill receives Royal Assent?
- Is the MLI coming into force and taking effect the same thing?
- Does the MLI take effect, for IncomeTax, in the income year commencing at least 6 months after the MLI enters into force, for both Australia and the relevant bilateral treaty partner?