Ireland will soon ratify the OECD's BEPS Multilateral Instrument, after an Order was included in the Finance Bill 2018, which was enacted on 19 December 2018. The MLI will bring about substantial changes to Ireland's network of double tax agreements to reduce opportunities for tax base erosion and profit shifting.
The Order was signed by Irish Prime Minister Leo Varadkar in late October 2018. According to information released by the Irish Government at the time, now that the Order has been included in primary legislation, all that remains is for the Irish Government to deposit the Order with the OECD.
The MLI – A Brief Summary
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, to give it its official title, was signed by Ireland, along with more than 60 other countries, in June 2017. Signing it demonstrates Ireland's commitment to adhere to best international tax standards.The Convention provides a method by which countries can bring their double tax agreements into line with those internationally agreed, without having to negotiate amendments bilaterally with every treaty partner. While the MLI provides countries with considerable flexibility with regards to the provisions they adopt, they must adopt these minimum standards. Provisions will address hybrid mismatch arrangements, treaty abuse, and strategies to avoid the creation of a "permanent establishment". The Convention also enhances dispute resolution mechanisms, which will benefit taxpayers facing double taxation.
According to a progress report issued by the OECD in November 2018, the Convention now covers 84 jurisdictions. It became effective from 1 January 2019, covering 47 treaties concluded among the 15 jurisdictions that first deposited their acceptance or ratification instrument.
Ireland’s Approach To The MLI
Ireland will use the Convention to modify the majority of its 74 existing tax treaties. Explaining Ireland’s position on the Convention in more detail, a technical note published by the Department of Finance in June 2017 stated that Ireland will implement the anti-avoidance rule in Article 14 of the Convention designed to prevent contractual arrangements being entered into to artificially prevent a long-standing building site from being classified as a permanent establishment (PE).
Ireland will also adopt the proposed "anti-fragmentation rule" included in Article 13 of the Convention, aimed to prevent corporate groups from fragmenting a cohesive operating business into several small operations in order to avoid PE status. Furthermore, Ireland will implement the OECD's proposals under BEPS Action 14, on making dispute resolution mechanisms more effective, including the proposal to include mandatory binding arbitration provisions in its tax treaties to better resolve disputes.
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Jurisdictions can opt out of sections of the MLI that do not include minimum standard provisions. These opt-outs are called "reservations". Where a jurisdiction uses a reservation to opt out of a provision of the MLI, these provisions will not be included in any of its covered agreements. Ireland intends to exercise that option on the following provisions of the convention:
• Article 10, which provides for anti-avoidance rules to target certain arrangements where foreign branch profits are exempt from tax;
• The "savings clause" provided for in Article 11 of the Convention, which provides for the application of tax agreements to restrict a party's right to tax its own residents; and
• Article 12, which provides for a new test for when an agent can constitute a PE.