German Legislator adopts MLI Application Act

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.

© Fotolia

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.