Recently, the multilateral treaty against international tax evasion was signed by nearly 70 countries, including the Netherlands. The treaty is one of the results of the Base Erosion and Profit Shifting project (BEPS-project) by the OECD. A number of countries intend to sign this treaty later this year. Below we explain the background and consequences of the agreement.

Background

The last few years the OECD (and G20) have developed the BEPS-project. Under the BEPS-project a number of action plans was issued to fight against tax evasion. Some of these action plans involved the amendment of bilateral tax treaties. To do so in an efficient way, a group of countries has worked to develop this multilateral agreement.

After the multilateral agreement was approved (November 24, 2016), all countries have been able to indicate how to implement the agreement in their existing tax treaties. The recent signing session of the agreement is the next step to implementation.

Coverage

The multilateral treaty has been signed by nearly 70 countries and, in addition to these countries, some other countries indicated the intention to sign this treaty in the near future. After signing the agreement, each country needs to ratify the agreement. Once five countries have completed the ratification process, the agreement will come into force.

It is expected that with the current number of signatories a total number of about 1.100 bilateral tax treaties will be affected. If all countries involved with drafting the agreement will adopt the agreement a total of 2.362 treaties will be affected!

Please note that the multilateral agreement contains a number of options that countries can apply. For instance, for the reduction of withholding taxes the so-called principal purpose test is chosen by all signatories, but only twelve countries chose to include a simplified limitation-on-benefits test as well.

Consequences for the Netherlands

With the signing of the multilateral treaty, it is expected that about 40 Dutch tax treaties will be changed by the agreement. The multilateral agreement does not require bilateral negotiations for these adjustments in the tax treaties. As soon as more Dutch treaty partners join the agreement, the number of treaties will increase rapidly.

Although tax treaties are intended to prevent double taxation, according to the BEPS-project tax treaties have frequently been used to reduce or avoid taxation in international contexts. The multilateral agreement has been drafted to prevent tax treaty abuse, to improve dispute resolution, prevent the artificial avoidance of permanent establishments and neutralise the effects of hybrid mismatch arrangements.

Please note that next to the multilateral agreement, the Netherlands will also implement the Anti-Tax Avoidance Directive of the EU . This directive obliges the EU Member States to implement anti-tax avoidance measures in their national legislation.

Final remarks

The multilateral agreement is a next step in the combat against tax evasion. Although implementation may take some time, we highly advise to check the potential impact of the agreement in your situation. Naturally, we would be happy to perform this impact check for you.

Please contact us, should you have any questions regarding the above.