Slowly but surely – an update on the scope and timing of the OECD multilateral instrument

Publication juin 2019

The multilateral instrument, or MLI, has potentially significant implications for taxpayers that rely on the provisions of one of Canada’s many bilateral tax treaties. On June 21, 2019, the Department of Finance (Canada) announced royal assent of Bill C-82, the Multilateral Instrument in Respect of Tax Conventions Act, which brings the MLI into Canadian law. While the timing of implementation remains uncertain, the provisions of the MLI that will impact Canadian withholding taxes will not be in force until January 1, 2020, at the earliest.


The MLI was developed by the Organisation for Economic Co-operation and Development (OECD), and endorsed by the G20, as part of the OECD’s base erosion and profit-shifting (BEPS) initiative. In the OECD’s words, the MLI is intended to “swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.” Canada signed the MLI on June 7, 2017, and at present, over 85 other countries have become signatories to the MLI. Bill C-82, which had first reading on June 20, 2018 and now has royal assent, reflects the most recent step toward the MLI having force and effect on Canada’s tax treaties.

The MLI generally requires signatories to adopt certain “minimum standards” for international tax treaties, and allows signatories to adopt certain other optional provisions, each of which will affect the application and interpretation of existing tax treaties. At the time of signing the MLI in June 2017, Canada originally agreed to the minimum standards as required under the MLI regarding treaty abuse and dispute settlement, as well as an optional provision concerning binding arbitration between treaty partners.

Canada adopts optional provisions

At the time of signing the MLI, Canada reserved on the rest of the MLI’s provisions. This was a common approach by parties to the MLI, as once a country agrees to the optional provisions it cannot later choose not to have the optional provisions apply or otherwise opt out of such optional provisions.

Under Bill C-82, Canada removed its reservation to certain additional optional provisions. These additional provisions could have a significant impact on treaty benefits between Canada and other countries that have signed the MLI and have agreed to remove the same MLI reservations. Specifically, the three primary additional provisions agreed to by Canada will:

  1. Impose a 365-day holding period for shares of Canadian companies held by non-resident companies for purposes of the reduced withholding rate on dividends.
  2. Impose a 365-day test period for non-residents who realize capital gains on the disposition of shares or other interests that derived their value from Canadian immovable property.
  3. Incorporate the MLI provision for resolving dual-resident entity cases.

What are the next steps?

Notwithstanding Bill C-82 receiving royal assent, the timing for the MLI to apply to Canada’s bilateral tax treaties remains uncertain and subject to a number of factors. For the MLI to apply to a particular bilateral tax treaty, (i) both parties to the particular tax treaty must be signatories to the MLI and formally list the other treaty partner (thereby, “matching”), and (ii) both parties to the tax treaty must pass domestic implementing legislation and notify the OECD of its successful passage. Only after these requirements are met and following the prescribed waiting periods will the MLI modify a particular bilateral tax treaty.

Although Canada listed 75 countries as having “covered tax agreements” when it signed the MLI, Canada has currently only matched with 55 countries for purposes of agreeing to the MLI, either because the other 20 countries are not MLI  signatories or did not list Canada. The United States is notably not a party to the MLI, thus the MLI will not affect the treaty between Canada and the United States.

First, Canada must notify the OECD of the passage of domestic legislation implementing the MLI. The MLI will enter into force for Canada’s listed tax treaties following a prescribed three-month waiting period. For example, if the OECD is notified of Bill C-82’s passage after July 1, 2019 but on or prior to July 31, 2019, the MLI would enter into force in Canada on November 1, 2019. In such case, the MLI would enter into effect and begin to modify treaties for countries with which Canada has matched (and which have also passed their own domestic implementing legislation and provided notification to the OECD on or before July 31, 2019), effective January 1, 2020, for withholding taxes, and for taxation years starting on or after May 1, 2020, for all other taxes.

As of publication, a number of Canada’s treaty partners have passed domestic legislation to implement the MLI and notified the OECD of this. This list includes the United Kingdom, Netherlands, Luxembourg, Sweden, France, and Japan.

Implementation of the MLI could have significant impacts on parties that currently rely on the provisions of a bilateral tax treaty between Canada and one of its treaty partners. Given the MLI’s pending application, it is important for taxpayers to continually consider the MLI and its potential impact to their particular circumstances to allow sufficient time to evaluate and restructure as appropriate.

Publications récentes

Abonnez-vous et restez à jour avec les dernières nouvelles juridiques, informations et événements ..