On 1 September 2020, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("Multilateral Convention" or "Multilateral Instrument" or "MLI") entered into force in the Czech Republic. MLI is an international treaty, which modifies a significant part of bilateral double taxation treaties concluded among specific countries. The Czech Republic opted for a regime of minimum standards, i.e. the least strict variant, and reserved the right not to apply most of the articles that should amend the relevant provisions of the tax treaties in question.
In addition, the application of MLI depends on the principle purpose test (PPT), one of the minimum standards designed to determine whether the initial purpose of a transaction or an organisational structure was just a tax one or also another one (e.g. an economic one). The minimum standard also includes rules for more effective dispute resolution.
Are you interested in this topic? Read all articles about the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).
On its website, the Ministry of Finance published information regarding which double taxation treaties have being already affected by MLI. These include specific treaties which the Czech Republic included in the Convention scheme and which have already been ratified in the respective countries (a prerequisite for the respective double taxation treaties to be modified). Information on the modification of the double taxation treaties in question is also being regularly published in the Financial Bulletin. The current overview of double taxation treaties can also be found on the website of the Ministry of Finance (however, this only includes the text of the Convention, not the modified versions of respective treaties).
Which treaties have already been modified?
Under the Convention, the Czech Republic has already modified its double taxation treaties with Ireland, Cyprus, Malta, Luxembourg, Switzerland, France, Belgium, the United Kingdom, Japan, Poland, Austria, Russia, Slovakia and other countries. We, therefore, recommend that you check whether the modified wording of these treaties could affect cross-border transactions in your company and their tax assessment.