On 14/11/2018, the OECD posted advice that it continues on the implementation of a landmark treaty to improve the international tax system which now covers 84 jurisdictions and will become effective on 1 January 2019 for the first 47 tax treaties concluded among the 15 jurisdictions that deposited their acceptance or ratification instrument.
On the same day, the OECD releases new Guidance for the Development of Synthesised Texts presenting a clear overview of the modifications to tax treaties resulting from the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “Convention” or “MLI”) which entered into force on 1 July 2018. The following paragraph gives an idea about what this ‘Guidance’ document is about.
This Guidance has been prepared to provide suggestions to Parties to the MLI for the development of documents they could produce to help users of the MLI to understand its effects on tax agreements it covers and modifies (the “Covered Tax Agreements”). The objective is to present in a single document and for each covered tax agreement: the text of a Covered Tax Agreement, including the text of relevant amending instruments; the elements of the MLI that have an effect on the Covered Tax Agreement as a result of the interaction of the MLI positions of its Contracting Jurisdictions; and information on the dates on which the provisions of the MLI have effect in each Contracting Jurisdiction for the Covered Tax Agreement. Such documents would be referred to as “synthesised texts”.
[Synthesised text’ is required because the MLI modifies Double Tax Agreements (DTAs), but it does not (and cannot) provide word for word amendments across such a wide variety of wordings adopted across the thousands of DTAs negotiated around the world. Instead it provides for three options and styles of modification – from complete replacement to lesser modifications, leaving quite a bit to the judgement of the individual reader. This synthesised text, it designed to give model synthesised text for as many of the various combinations as proves practical. They won’t be binding, but will be an aid to member nations wanting to give their taxpayers and local authorities some guidance – hoping to produce, also, as much consistency in interpretation, as possible. In Australia, for instance, the Commissioner might want to give various or most of these guidance documents, binding effect, in favour of taxpayers, by endorsing them in a public ruling, about the meaning of the various DTAs, to which Australians are a signatory and have been ‘covered’ under this MLI process.]
The Guidance has been developed by the OECD Secretariat with input from the members of the Ad hoc Group on the MLI. It can be used by governments that intend to provide insight into the impact of the Convention on existing treaties. Synthesised Texts also provide comprehensive information to taxpayers, auditors, advisors and other users on when the modifications will have effect in each jurisdiction.
Several jurisdictions have already started preparing Synthesised Texts on the basis of the Guidance, taking into account their own publication requirements and practices. In September, Poland was the first jurisdiction to publish Synthesised Texts on its website. The release of today’s Guidance intends to ensure that interested parties can prepare synthesised texts in a consistent manner.
A Secretariat note, also released today, clarifies the entry into effect rules for tax treaties of jurisdictions that deposited their ratification instruments last September. The following paragraph from the Note, sets out the question to be answered.
The question which has arisen on Article 35(1)(a) is this: when will the MLI have effect for taxes withheld at source where the latest of the dates of entry into force of the MLI for a pair of Contracting Jurisdictions is on 1 January of a given calendar year?
The Guidance and the Secretariat Note are the most recent additions to a wide range of existing tools and background documents, including the popular MLI Matching Database. The OECD is also expanding the functionality of the database to include information on entry into effect.
CPD questions (answers available)
- On what date does the first tranche of 47 DTAs, for jurisdictions which have deposited their acceptance or ratification instrument?
- Did the OECD, on 14.11.18, release a new Guidance for the Development of Synthesised Texts presenting an expression of how a modified provision, of a covered DTA, would read?
- Will each of these be exact and binding?
- If our Tax Authorities thought it wise, how might Australia give OECD ‘synthesised text’, relevant to its DTAs binding effect, in favour of taxpayers?