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Multilateral instrument Following Turkey's signing of the OECD Multilateral
Convention (MLI) on 7 June 2017, the government released
its provisional list of reservations and notifications as below:
Base Erosion and Profit Shifting (“BEPS”) refers to harmful
tax planning strategies. There is an annual loss between 100 The listed reservations are:
and 240 billion dollars due to BEPS on worldwide corporate
tax revenue based on OECD statistics. Working together
in the OECD/G20 BEPS Project, over 60 countries jointly ➢• Article 4 (Dual Resident Entities)
developed 15 actions to tackle tax avoidance and to ensure ➢• Article 5 (Application of Methods for Elimination of Double
a more transparent tax environment. The MLI, a reflection Taxation)
of BEPS Action numbered 15, helps the fight against BEPS
by implementing the tax treaty-related measures developed ➢• Article 8 (Dividend Transfer Transactions)
through the BEPS Project in the existing bilateral tax treaties. ➢• Article 9 – 9(1) (Capital Gains from Alienation of Shares or
Interests of Entities Deriving their Value Principally from
Abuse of tax treaties is an important reason of BEPS. Immovable Property)
Countries that are parties to the MLI will be able to modify
their Covered Tax Treaties where MLI provisions are agreed ➢• Article 10 (Anti-abuse Rule for Permanent Establishments
by the both parties of the tax treaty. The MLI is an instrument Situated in Third Jurisdictions)
which helps the fight against BEPS by implementing the tax ➢• Article 11 (Application of Tax Agreements to Restrict a
treaty-related measures developed through the BEPS Project Party's Right to Tax its Own Residents)
in existing bilateral tax treaties. These measures aim to
prevent treaty abuse, improve dispute resolution, prevent the ➢• Article 14 (Splitting-up of Contracts)
artificial avoidance of permanent establishment status and ➢• Article 17 (Corresponding Adjustments)
neutralize the effects of hybrid mismatch arrangements.
The notifications relate to the following articles:
Rather than being a protocol that directly amends the text
of the current tax treaties, the MLI modifies “Covered Tax ➢• Article 6 (Purpose of a Covered Tax Agreement)
Agreement” of the signatories. A Covered Tax Agreement is
a tax treaty which is in force between the parties to the MLI ➢• Article 7 (Prevention of Treaty Abuse)
and for which both parties have made a notification that they ➢• Article 9 - 9(4) (Capital Gains from Alienation of Shares or
wish to modify the agreement using the MLI. The OECD will Interests of Entities Deriving their Value Principally from
make available to the public lists of modified tax treaties and Immovable Property)
all relevant information on effects of the MLI provisions.
➢• Article 12 (Artificial Avoidance of Permanent
In the application of MLI provisions to Covered Tax Establishment Status through Commissionaire
Agreement, a provision of MLI will not be in force if one of Arrangements and Similar Strategies)
the contracting states of a tax treaty uses reservation to opt ➢• Article 13 (Artificial Avoidance of Permanent
out that provision. A party could both use reservation to opt Establishment Status through the Specific Activity
out a provision for all its Covered Tax Agreements or specific Exemptions)
ones.
➢• Article 16 (Mutual Agreement Procedure)
The timing of entry into effect of the modifications is linked
to the completion of the ratification procedures in the Number of the MLI signatory jurisdictions are gradually
jurisdictions that are parties to the Covered Tax Agreement. increasing. Signatory jurisdictions notify their lists of
The signatories will inform the OECD of the completion of reservations and notifications to the OCD. As mentioned
their ratification procedures. The OECD will be tracking above, Turkey used reservation for 9 of the MLI provisions
ratification procedures completed by the MLI signatories and and notified OECD that it wished to apply 6 of the MLI
publish the relevant information. provisions for its Covered Tax Agreements.
The text of the MLI was published on 13 November 2016. Although the MLI is not yet in force for Turkey due to the fact
The MLI opened to the signature according to Article 27 of that the ratification process of the MLI is not yet completed,
the Agreement and on 7 June 2017, signing ceremony of the it contains notable changes to Covered Tax Agreements.
MLI was held in Paris. The MLI was signed by 94 countries The MLI, which is a direct reflection of BEPS Action 15, is an
including Turkey at the ceremony and afterwards. indicator showing to which extent Turkey applies decisions
and standards set by the OECD under BEPS Project.
Turkey opted to notify all its tax treaties as Covered Tax
Agreements. While MLI was signed by Turkey, approval
process has not been completed yet in terms of Turkish
domestic law for the amendments to be effective.
Consequently, the MLI has no effect on Covered Tax Explanations in this article reflect the writer's personal view on the
Agreements determined by Turkey yet. matter. EY and/or Kuzey YMM ve Bağımsız Denetim A.Ş. disclaim any
responsibility in respect of the information and explanations in the
article. Please be advised to first receive professional assistance from
the related experts before initiating an application regarding a specific
matter, since the legislation is changed frequently and is open to different
interpretations.
14 March 2020