Impact Of The Multilateral Instrument On Dutch Bilateral Tax Treaties

Author:Mr Heico Reinoud and Wesley Boldewijn
Profession:Dentons
 
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On March 5, 2019, the Upper House (Eerste Kamer) of the Dutch parliament approved the Multilateral Convention to implement tax treaty-related measures to combat base erosion and profit shifting. The Multilateral Instrument ("MLI") will apply to Dutch bilateral tax treaties if the other contracting jurisdiction finalized its ratification process as well. The impact of the MLI will depend on the choices made by both the Netherlands and the contracting jurisdiction. A total of 23 Dutch bilateral tax treaties will be impacted by the MLI as of January 1, 2020.

Please also see our MLI news alert for a more detailed description on the MLI.

Five steps to take

When approaching a bilateral case in 2020, please be aware of the five steps to take (from a Dutch perspective):

* The provisions in a bilateral tax treaty may be in violation of EU law. However, in case only one of the contracting jurisdictions is an EU Member State, the bilateral tax treaty prevails over EU law. EU law only prevails over the bilateral tax treaty if both contracting jurisdictions are EU Member States and if the Member States implemented EU law correctly.

Entry into force / entry into effect

The MLI enters into force on the first day following three months after the last contracting jurisdiction finalized its ratification process. The provisions of the MLI enter into effect and therefore actually impact bilateral tax treaties:

Withholding taxes: on the first day of the first calendar year following the entry into force; and Other taxes: for taxable periods beginning on or after six months after the entry into force date. Provisions of the MLI

A brief description of the most important MLI provisions:

Article 3 Transparent entities: Income derived by or through a transparent entity or arrangement shall be considered to be income of a resident of a contracting jurisdiction if the national tax laws of this jurisdiction allow taxation of this income as if it were income of a resident. Article 4 Dual resident entities: The competent authorities of a dual resident entity shall endeavour to determine by mutual agreement the jurisdiction of which the entity shall be deemed to be a resident for bilateral tax treaty purposes. Relevant factors: place of effective management, place of incorporation and any other relevant factors. In principle, treaty benefits will be denied in absence of an agreement. Article 7 Prevention of treaty abuse: Jurisdictions may choose between the...

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