Canada

Ratification of MLI moves forward

TAX ALERT  | 

On June 21, 2019, Finance Minister Bill Morneau announced the Royal Assent of Bill C-82, The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (also known as the Multilateral Instrument or MLI). The MLI is a global initiative developed by over 100 jurisdictions to counter tax avoidance strategies that lead to base erosion and profit shifting (BEPS).

The MLI will allow Canada to modify its existing tax treaties to include measures developed under the Organisation for Economic Co-operation and Development /G20 BEPS project without having to individually renegotiate those treaties, allowing the measures to be implemented in a synchronized and efficient manner.

For additional detail, please see RSM’s previous Tax Alert.

Entry into force and entry into effect

The MLI enters into force on the first day of the month that is three calendar months following ratification, being October 1, 2019.

For withholding taxes, where the MLI is already in force for a counterparty to a Covered Tax Agreement (defined terms are explained in RSM’s previous Tax Alert), the MLI will enter into effect for that Covered Tax Agreement on the first day of the next calendar year that begins on or after the date on which the MLI enters into force for Canada, being January 1, 2020. Where the MLI is not yet in force for a counterparty, the MLI will enter into effect for that Covered Tax Agreement on the first day of the next calendar year that begins on or after the latest of the dates on which the MLI enters into force for each of the contracting jurisdictions to the Covered Tax Agreement.

For other taxes, where the MLI is already in force for a counterparty to a Covered Tax Agreement, the MLI will enter into effect for that Covered Tax Agreement for tax years beginning six months after the MLI enters into force for Canada, meaning for tax years beginning on or after April 1, 2020. Where the MLI is not yet in force for a counterparty, the MLI will enter into effect for that Covered Tax Agreement for tax years beginning on or after six months from the latest of the dates on which the MLI enters into force for each of the contracting jurisdictions to the Covered Tax Agreement.

Takeaways for middle market businesses

Businesses with international footprints may be impacted if they rely on tax treaties to determine tax consequences such as withholding tax rates, dispute resolution procedures, allocation of taxing rights, and general eligibility for treaty benefits. Existing cross-border arrangements should be revisited prior to the end of the year to identify and analyze the implications of the MLI.

AUTHORS


Subscribe to our newsletters

Subscribe


HOW CAN WE HELP YOU?

Contact us by phone +1.855.420.8473 or submit your questions, comments or proposal requests


CONTACT

Maria Severino

National Tax Leader


Recent Tax Alerts

FCA emphasizes sparing use of tax remission orders in Internorth case

Remission orders as a means of tax debt relief only apply in extraordinary circumstances, as substantiated by the decision on a recent case.

  • July 17, 2019

Late filing of pre-acquisition surplus elections

The International Fiscal Association provides insight on CRA’s discretionary power to accept a late pre-acquisition surplus election.

  • July 10, 2019

Foreign affiliate dumping rules pose challenge to private equity funds

The Joint Committee on Taxation addressed key challenges private equity funds face in applying foreign affiliate dumping rules.

  • June 27, 2019

New draft legislation released on stock options tax

Draft legislations targets large, established firms with proposed cap on deductability of employee stock options.

  • June 24, 2019

Ratification of MLI moves forward

The Multilateral Instrument (MLI) takes effect on October 1, 2019, impacting businesses relying on tax treaties for their tax planning.

  • June 24, 2019