German Legislator adopts MLI Application Act
Germany informed the OECD on 2 October 2024 that the domestic measures for seven of the nine DTAs covered by the German MLI Application Act have been completed. The modifications of these DTAs by provisions in the MLI are therefore applicable from 1 January 2025.
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 have been transposed into national law with the MLI Application 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 German 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 German Federal Government presented a draft law on the application of the Multilateral Convention of 24 November 2016 and further measures (MLI Application Act). The final law came into force with publication in the German Federal Law Gazette on 20 January 2024.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 between Germany and France, Spain or 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.
For the application of the modifications, notification of the completion of the legislative process to the OECD is required. This was done on 2 October 2024 for the DTAs with the following countries:
- France
- Greece
- Croatia
- Malta
- Slovakia
- Spain
- Hungary
Notification of the legislative process to the OECD regarding the DTAs with Japan and the Czech Republic is still pending.
Since the notification to the OECD has been made, the modifications for the DTAs with Croatia, Greece, Hungary, Malta, Slovakia, and Spain will generally apply from 01.01.2025. For the DTA with France, however, this early application date only applies if France confirms it.