On 16 May 2024 the German Bundestag adopted the draft of an application law for the BEPS-MLI, which was presented by the German government on 7 February 2024. On 14 June 2024, the German Bundesrat gave its approval so that the act can enter into force. The law affects the application of the provisions in double taxation agreements with several countries.
On 7 June 2017, Germany signed the "Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting" (BEPS-MLI), thereby providing a further building block in the fight against harmful tax arrangements. Specifically, various minimum standards that were adopted as part of the BEPS project were agreed upon. In addition to the minimum standards, the BEPS-MLI contains further regulations for the adjustment of double taxation agreements (DTAs) developed in the course of BEPS. The BEPS-MLI is intended to enable a large number of existing DTAs to be adapted in a dynamic process and thus, in comparison to bilateral treaty negotiations, to achieve an accelerated implementation of international standards.
Based on this, the participating states have each determined whether and which of these regulations they wish to take into account when applying their DTAs with other participating states. Germany has chosen a two-stage procedure. Firstly, the specific BEPS-MLI regulations to be applied were agreed with other participating states. These agreements are then subject to ratification into national law and notification of implementation to the OECD. Of the 33 matching agreements, the regulations with nine countries are to be transposed into national law with the Implementation Act.
Note: Some of the DTAs originally notified for application, e. g. the DTAs with Austria and Luxembourg, have since been adapted bilaterally, contrary to the intention to accelerate the BEPS-MLI, and are not included in the Implementation Act. The originally planned application of the BEPS-MLI to the DTAs with Italy and Turkey has also failed for the time being because these countries have not yet ratified the BEPS-MLI.
On 7 February 2024, the Federal Government presented a draft law on the application of the Multilateral Convention of 24 November 2016 and further measures (MLI Application Act). The German Bundestag adopted the draft in its session on 16 May 2024 without any amendments. The German Bundesrat gave its approval on 14 Juni 2024. Thus the necessary legislative procedure for the specific application of the measures under the BEPS-MLI is almost completed. The measures of the MLI Application Act are applicable in the context of the DTAs between Germany and the following countries:
- France
- Greece
- Japan
- Croatia
- Malta
- Slovakia
- Spain
- Czech Republic
- Hungary
The Act contains individual details for each of the above-mentioned countries as to which articles of the BEPS-MLI are to apply. This concerns, among other things, provisions on mutual agreement and arbitration proceedings, the requirements for establishing a permanent establishment or the taxation of real estate companies. The resulting modifications must be taken into account when applying the existing DTAs, i. e. they either modify the application of the treaty provisions or are to be applied instead of them. Accordingly, for example, the withholding tax relief provided for in the DTAs with France, Spain and Slovakia for dividend payments to a company with a certain shareholding shall only be granted if a minimum holding period of 365 days is observed.
The legislative process is to be completed within the next weeks. Provided that the subsequent notification to the OECD also takes place in 2024, the changes are applicable from 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.