MLI: UK Update

The Multilateral Convention to Implement Tax Treaty

Related Measures to Prevent Base Erosion and Profit Shifting (MLI) has now been ratified and the notification was sent to the OECD on 29 June 2018.

The MLI will enter into force in the UK on 1 October 2018. The MLI will only have effect for double taxation agreements that have been listed as covered agreements by both the UK and the relevant treaty partner, with the date of effect for such a treaty being determined by reference to the later of the dates that the MLI enters into force for both treaty partners. Changes to the UK’s treaties cannot take effect before 1 January 2019 in relation to withholding taxes and 1 April 2019 for all other taxes, although the arbitration provisions may apply earlier.

The MLI will bring in a Principal Purposes Test (“PPT”) and is likely to result in increased focus on the purpose of structures and transactions by tax authorities, even where there was a PPT in the relevant treaty. Businesses should not rely upon the fact that challenges have not been raised historically and should undertake a review of the existing position to avoid future challenges from the Tax Authorities.

Rajesh Sharma , Smith & Williamson, United Kingdom.