Three observations on the UK’s first post-MLI tax treaty

HMRC and the tax authority of Slovenia have jointly published a revised version of the UK / Slovenia double tax treaty, to include all of the changes required by the multilateral instrument (MLI).

This is the first time that a UK treaty has been republished to show the effect of MLI has on the existing provisions.

As a quick refresher, the MLI was designed to implement the OECD/G20 BEPS recommendations in relation to changes to double taxation treaties. One of the key purposes is to restrict “treaty shopping”, so that (for example) it will be harder for companies with limited substance in their state of residence to rely on tax treaties to eliminate withholding taxes and local capital gains taxes.

Looking through the new UK / Slovenia text, three points jump out.

1. The changes take effect very soon

This is one of the first UK treaties to include the MLI provisions. The changes take effect from 1 January 2019 (for withholding taxes), with corporation tax periods after 1 April 2019 and individual tax years after 6 April 2019 fully in scope.

It is very helpful that HMRC have been able to publish a revised text in advance of those dates.

We understand from informal discussions that HMRC plan to publish similar updates for all of the UK’s treaties which are affected by the MLI changes before those changes take effect. Based on ratification dates in other states, this means the next few treaties are likely to include Austria, Isle of Man, New Zealand, Jersey, Poland, Serbia and Sweden.

2. This is not a conventional redline

Lawyers are used to dealing with mark-ups (or “redlines”) that show additions and deletions to an earlier version of a document.

This revised treaty is not set out that way. Instead, boxes illustrate where new wording is added, and there are notes to explain what has been removed.

This takes a bit of getting used to, but probably makes sense from HMRC’s perspective when you look at the next point.

3. Use with caution: the consolidated version is not definitive

This new, consolidated text has no legal force. It is an attempt to show what the true legal picture is (by combining the original text and the new points to read-in). Any mistakes cannot be relied on, so advisers need to use this with due care.

For more information on the timetable for the rollout of UK treaty changes after the MLI, see our briefing note.