Principal Issues: General comments on the MLI
Position: See below
2018 Canadian Tax Foundation Annual Conference
CRA Roundtable
Question 3 – Multilateral Instrument Issues
Canada introduced legislation to implement the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”): https://www.fin.gc.ca/n18/18-037-eng.asp. Particular interest has been noted concerning the principal purpose test (“PPT”) and the optional provisions that Canada has indicated it intends to adopt on ratification. At this time, what comments can the CRA provide as to the impact of the MLI?
CRA Response
Canada signed the MLI on June 7, 2017. At the time of signature, Canada made a provisional notification, pursuant to Article 29(1)(a) of the MLI, listing the bilateral tax treaties that Canada wishes to be covered by the MLI, and made provisional reservations with respect to some of the optional provisions under the MLI.
On May 28, 2018, the Minister of Finance tabled a Notice of Ways and Means Motion in the House of Commons formalizing the Government’s intention to introduce legislation that would enact the MLI. The Minister also issued a press release that indicated Canada’s intention to remove its provisional reservations on a number of the MLI’s optional provisions. These include the provision to impose a 365-day holding period for certain shares of Canadian companies held by non-resident companies, the provision to 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, and the provision dealing with dual resident entities.
For the MLI to come into force for a signatory, that signatory must first complete any domestic procedures required to implement the MLI. It must then deposit a notice of ratification, acceptance or approval with the Depositary of the MLI, being the Secretary-General of the Organisation for Economic Co-operation and Development. On June 20, 2018, the Government of Canada introduced Bill C-82, an act to implement the MLI, in the House of Commons. Bill C-82 received second reading on October 15, 2018.
It is important to note that the MLI does not operate to modify the application of Canada’s tax treaties at the same time. For the MLI to come into effect for a particular bilateral tax treaty, both Canada and the other party to the treaty must have listed the treaty and ratified the MLI.
Further, the impact of the MLI on any particular tax treaty will depend on the notifications and reservations made by the parties to that treaty under the MLI. In addition, mandatory binding arbitration, where applicable, requires further matching of MLI positions taken by Canada and a treaty partner before it applies to a bilateral tax treaty.
You may also wish to refer to comments provided by the CRA on the MLI, and in particular the PPT, at the 2017 CTF Annual Tax Conference and the 2018 IFA Canada International Tax Conference.
Grace Tu
Sherry Thomson
2018-077989
November 27, 2018