World Wide Tax News Issue 54 - March 2020

MLI MAP-tiebreaker - Dutch State Secretary of Finance intends to respect the outcome of ‘old’ corporate/MAP-tiebreakers of tax treaties

From 1 January 2020, the Multilateral Instrument (MLI) entered into force for a number of double tax treaties the Netherlands has concluded with other states. For some of these tax treaties, the Mutual Agreement Procedure of the MLI (‘MLI MAP-tie-breaker’) will now be applicable when two states claim the tax residence of the company. This MAP-tiebreaker requires that both states should mutually agree upon the tax residence of a company for tax treaty purposes. The MLI MAP-tiebreaker replaces the so-called corporate-tiebreakers – using the place of effective management as the decisive factor for determining tax residency - and the MAP-tiebreakers that were included in the relevant tax treaties up to 1 January 2020.

In a new decision, the Dutch State Secretary of Finance confirms that no new request for the MLI MAP-procedure has to be filed where the fiscal residence of a company has already been determined on the basis of a corporate-tiebreaker or MAP-tiebreaker that was applied in a tax treaty before the MLI took effect. The outcome of the ‘old’ corporate-tiebreaker or MAP-tiebreaker will be respected. This is not the case when the facts and circumstances on which the ‘old’ corporate- tiebreaker and MAP-tiebreaker were based have changed.

The approval is only relevant for the application of the MLI MAP-tiebreaker in a tax treaty from a Dutch perspective. A tax treaty partner may not respect the outcome of the ‘old’ corporate-tiebreaker or MAP-tiebreaker. In that case, the taxpayer can request to start the MLI MAP-procedure of the relevant tax treaty.

We recommend checking whether your company is subject to a tax treaty with the MLI MAP-tiebreaker. If so, you should review whether your company - from a Dutch perspective - can rely on the outcome of an ‘old’ corporate-tiebreaker or MAP-tiebreaker of the relevant tax treaty.

Update: Status of negotiations for tax treaties of the Netherlands

The Dutch Government intends to start tax treaty negotiations with several countries, including Australia, Aruba, India, Israel, Mozambique, Senegal and Thailand. In addition, the Netherlands will continue discussions for new or updated treaties with Belgium, Brazil, Chile, Curaçao, Morocco, Uganda and Portugal.

An important aspect is that the Multilateral Instrument (MLI) has entered into force for the Netherlands from 1 January 2020, as mentioned above. However, the Dutch Government decided not to apply the MLI to all tax treaties. One of the main reasons why certain tax treaties were not deemed to be a “MLI covered tax treaty” was that the Dutch government intended to change the respective tax treaty by means of bilateral negotiations rather than the MLI. It is likely that the Dutch position on the MLI will act as a starting point for the Netherlands for these bilateral negotiations.

Hans Noordermeer
[email protected]

Niek de Haan
[email protected]