On 16 November 2018 the Norwegian Ministry of Finance made a proposal to the Norwegian Parliament to approve a multilateral agreement to implement changes to the tax treaties of which Norway is a party (Multilateral Convention to Implement the Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI)). The purpose of the proposal is to counter erosion of tax base and to prevent profit shifting. Through the proposal, the Ministry follows up the BEPS measures made by OECD/G20 in 2015.
The MLI is an independent treaty that changes or complements the tax agreements to which it applies. The MLI consists of 39 articles of which some articles are "minimum standards" that all countries participating in the implementation of the BEPS project have agreed to introduce. Other provisions may be implemented dependent on each countries respective choice with respect to the specific tax treaty. In order to change the relevant tax treaty by implementation of the MLI, it is a condition that both contracting parties have made the same choices with respect to the relevant MLI article. If Norway and the other treaty party have made different choices in this respect, the treaty between the parties will remain unchanged except for the minimum standard.
Norway has entered into more than 90 tax treaties with other countries, of which 28 will be included in the MLI. Tax treaties subject to renegotiation are excluded.
There are some articles in the MLI that are particularly relevant and which will result in effective changes for the tax treaties covered by the MLI:
- MLI Article 5 includes methods to prevent double taxation. Norway has chosen to avoid double taxation by way of entitling the tax payer a tax credit for taxes paid in the other state in the tax payer's Norwegian tax (credit method). The provision will affect those tax treaties covered by the MLI which currently avoid double taxation through the tax exemption method (i.e., where Norway excludes income from taxation if it is taxed in the other State).
- MLI Article 6 states that the tax treaties explicitly shall state that the purpose of the tax treaty is to prevent double taxation and to prevent double non-taxation.
- MLI Article 7 aims to prevent treaty abuse. A benefit under the tax treaty shall not apply if the main purpose of a transaction or arrangement is to achieve such a benefit, unless granting of the benefit is in accordance with the object and purpose of the relevant provisions of the covered tax agreement (Principal Purpose Test / PPT Rules). The article also describes a simplified Limitation of Benefit (LoB) rule, which limits tax treaty benefits according to a more objective rule than the PPT-rule. Norway has chosen not to implement the LoB provision, but will nevertheless apply it in cases where the other state has chosen to introduce the provision. Norway aims to introduce LoB provisions in their tax treaties, but through bilateral negotiations instead of the MLI.
- MLI Article 16 deals with mutual agreement procedures between Norway and the other contracting state. The provision implies that a person may choose to contact only one of the states to promote a mutual agreement procedure and that the competent authority of such state shall endeavour to resolve the case through a mutual agreement.
Other material articles of the MLI covers provisions regarding transparent entities, dual residence entities, ownership requirements for reduced withholding tax on dividend payments on direct investments and provisions on artificial avoidance of permanent establishment status through specific activity exemptions. Norway has chosen to implement the provisions, but made reservations for those tax treaties that already have similar provisions.
Norway has chosen not to implement the articles of the MLI regarding capital gain from sale of shares where the underlying assets are real property (Article 9), an anti-abuse rule for permanent establishments situated in third jurisdictions (Article 10), provisions on the split-up of contracts to avoid permanent establishment (Article 14) and Part VI regarding arbitration.
The proposal, the treaty text and the various reservations Norway has made are available here.