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The signatory states include jurisdictions which are traditionally relevant in the tax sphere, such as Luxembourg, Ireland and the Netherlands, and others which until recently were classed by Spain as tax havens, like Guernsey, Jersey, Cyprus and Hong Kong. Worthy of note is that, in the end, the United States has not signed the Multilateral Convention.

We remember that the aim of the Multilateral Convention is to implement a series of measures proposed in the BEPS (“Base Erosion and Profit Shifting”) Action Plan to combat the so-called aggressive tax planning. These measures include most notably the signatories’ firm aim of preventing “tax-treaty shopping” by including in the treaties a principal purpose test clause (“PPT Clause”), according to which the tax treaty will not apply in cases where the main aim of a structure or transaction is to benefit from the favorable tax treaty conferred by the treaty in question.   

In the same signing ceremony, the signatory states communicated a provisional list of options and reservations to certain provisions of the Multilateral Convention (i.e., provisions that will not apply or that are envisaged to apply with certain qualifications). That list of reservations will become final or will be amended when the state in question deposits the relevant ratification instrument.

The Multilateral Convention will not take effect immediately but it will be necessary for at least five states to have deposited the ratification instrument (at least five states must have completed their internal processes, normally passage through parliament, of approval and ratification of the Multilateral Convention). The Multilateral Convention will take effect on the first day of the fourth month after the date of deposit of the fifth ratification instrument and, obviously, will only take effect in relation to the treaties in which the two signatory states have ratified the Multilateral Convention.

The signing of the Multilateral Convention is an important step forward in reaffirming the states’ will to combat the so-called aggressive tax planning. In view of the wording of the actual Convention and of the options and reservations expressed by the different countries, the correct application of the tax treaties will become a highly complex task. Some states have announced their intention to publish consolidated versions of the tax treaties that could facilitate the correct application thereof. In the meantime, in order to properly apply tax treaties, a detailed analysis should be made of the wording of the tax treaties in force and their protocols, of the Multilateral Convention, and of the reservations made to it by the signatory states.