Tax & Accounting Blog

Netherlands Announces Initial Position on OECD BEPS MLI

BEPS, Blog, Checkpoint, ONESOURCE, Transfer Pricing April 14, 2017

On March 21, 2017, the Netherlands Secretary of Finance issued a response to Parliament after Parliament raised questions based on the original October 28, 2016 letter sent to Parliament on the OECD BEPS multilateral instrument (MLI). See BEPS Action 15.

BEPS MLI Developments

The OECD has scheduled an MLI signing ceremony during the week of June 5, 2017 in Paris. If the Netherlands signs the MLI at that time, the approval procedure will begin in the second half of 2017, and the law will be submitted to the Dutch Council of State for approval. The choices and reservations may be changed in response to further Dutch parliamentary debate, and these only become definitive at the time of depositing the MLI ratification documents.

At least five jurisdictions must ratify the treaty for the MLI to enter into force. Dutch bilateral tax treaties will be amended depending on the Netherlands and respective treaty partner’s approval of the MLI. The MLI will apply in addition to existing tax treaties.

Jurisdictions involved in the OECD Ad Hoc Group may not all sign the MLI. In addition, countries that are not part of the Ad Hoc Group may sign. Developing countries were represented widely in the Ad Hoc Group. Countries that sign the MLI must specify which tax they want the MLI to cover in their tax treaties. The MLI only adjusts tax treaties when both partners participate in the MLI and have notified that they want to bring the relevant tax treaty within the scope of the MLI.

Many jurisdictions have expressed their intentions to the OECD Secretariat on the interpretation of the BEPS minimum standard against treaty abuse through the principal purpose test (PPT). See BEPS Action 6. According to the Netherlands, the PPT is the only measure used to ensure compliance with the minimum standard against treaty abuse.

The Netherlands intends to include specific reservations to the MLI, including against the “saving clause,” splitting-up of contracts (which may allow companies to avoid a permanent establishment; see BEPS Action 7), and in support of mandatory and binding arbitration (see BEPS Action 14). The saving clause explicitly states that under the treaty, countries retain the right to tax their citizens according to their national rules, with some exceptions.

The March 21st response also discussed hybrid situations under BEPS Action 2.

Other BEPS Developments

With respect to rulings under BEPS Action 5, a ruling request must be addressed to the inspector under whose jurisdiction the taxpayer falls. In the case of an advance pricing agreement (APA) or advance tax ruling (ATR) request, the inspector submits the request to the APA / ATR team for a binding opinion.

The Netherlands is on schedule with the implementation of country-by-country (CbC) reporting. See BEPS Action 13. The first country report must be submitted to the Dutch Tax Office for the fiscal year commencing on or after January 1, 2016, and is due 12 months from the end of the reporting year.

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