Niamh Keogh, of counsel
T: +353 1 614 5000
John Gulliver, tax partner
T: +353 1 614 5007
On June 7 2017, Ireland along with almost 70 other countries
signed the OECD’s MLI. The MLI incorporates
certain recommendations made under the BEPS project. Most OECD
countries and some developing countries have now signed up to
the MLI. Additional jurisdictions are expected to sign at a
Scope of the MLI
The MLI was developed as a mechanism to introduce change to
international double tax treaties (DTAs). It was chosen as
an alternative to a more time-consuming exercise of
individually amending the thousands of bilateral treaties in
existence. Some provisions of the MLI are mandatory (or
"minimum standards") for the participating countries, while
others are optional "best practices". While the MLI modifies
existing treaties, it does not prevent future renegotiation of
those treaties and it is expected that Ireland will continue to
expand and enhance its DTA network over the coming years.
Key provisions in the MLI
The focus of the MLI is on the BEPS recommendations on the
treatment of hybrid structures, treaty abuse, permanent
establishment status and dispute resolution.
Ireland’s position on
key issues is discussed below.
The permanent establishment (PE) rules relate to the
circumstances where a company can have a taxable presence in
another country. A definition of what constitutes a PE is
contained in a DTA. The MLI includes optional changes to the PE
definition which, if adopted, would make it easier for a
company to create a PE in a DTA country which also adopts the
Ireland has not opted into the MLI provision which would
create a PE for a company where a dependent agent (e.g.
employee) habitually plays the principal role leading
to the conclusion of contracts. Since Ireland is not adopting
this particular provision, other DTA countries will not have a
right to impose tax under this provision even if the other
country adopts the new rule.
The Irish Department of Finance has indicated that work is
still underway at an OECD level to determine what profits, if
any, would be attributable to PEs created under the new rule
and Ireland is reserving its position due to the continuing
uncertainty as to how the test would be applied in practice.
However, Ireland has opted for other changes to the PE
definition such as an "anti-fragmentation" rule which is
designed to prevent groups from dividing a business into
several smaller operations to avoid creating a PE and,
therefore, some structures may be impacted by the MLI.
Ireland will adopt the principle purpose test (PPT) which
introduces a general anti-avoidance clause into
Ireland’s DTAs which are covered by the MLI.
Ireland has not opted to supplement the PPT with a limitation
on benefits (LOB) clause.
Ireland has signed up to new rules around dispute
resolution. Increased information sharing at an EU and OECD
level is expected to lead to more cross-border tax disputes.
The MLI is intended to provide better dispute resolution
mechanisms for cross-border tax disputes. Ireland, like most
countries, has opted into the default option of final offer or
"baseball" arbitration. This is where each tax authority
submits a proposal to address the issues to an arbitration
panel which selects one of the proposals. Ireland is also one
of 25 countries which have opted into mandatory binding
arbitration in certain cases.
Entry into effect
Ireland’s DTA with another country will be
modified by the MLI where both DTA partners have respectively
ratified the MLI. The effective date for withholding taxes
under a particular DTA will be the first day of the calendar
year following ratification by both DTA parties. For all other
taxes, it will take effect for taxable periods beginning on or
after the expiry of six months after both have ratified the
MLI. Therefore the earliest effective date for any of
Ireland’s DTAs is 2018. However, this would seem
ambitious as it is not yet known when Ireland will ratify the
Actions to be taken
Groups should assess whether the adoption of the MLI is
likely to impact on the availability of DTA benefits or on
existing sales structures using Ireland. A review should also
consider the impact of other international tax developments,
including the EU directives on tax avoidance which will be
implemented in the coming years.
This article was prepared by Mason Hayes & Curran,
International Tax Review’s correspondents in