The month of June is often nicknamed “the tax month” by almost all tax advisors. This year it gained extra meaning because not only is it the month of income tax return statements but also two very important international documents have been introduced.

Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting

On June 7^th the multilateral instrument (MLI) to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS). The instrument was signed in Paris by the Czech jurisdiction and by jurisdictions of 75 more countries. Its aim is it to accommodate existing contracts and instruments for prevention of double taxation to the conclusions of the BEPS project which aims to limit practices leading to minimization of taxes through base erosion and profit shifting to different states.

This instrument is basically the first tangible result of the BEPS project’s work and it allows implementation of suggested regulations into existing national legislatures concerning double taxation relatively quickly. The MLI provides two different kinds of provisions: (i) so called minimum standards, whose implementation is obligatory, and (ii) optional provisions, whose implementation is voluntary.

The MLI includes suggestions such as:

• Limitation of utilization of advantages arising from international treaties for prevention of double taxation if these advantages are used for tax evasion;
• Limitation of avoidance to create permanent establishments and then deduce tax, or more precisely non-taxation in the country of creation;
• Limitation of so called hybrid structures which aim to utilize different tax regimes of different countries;
• Improvement of mechanism for solution of disputes regarding interpretation of treaties on double taxation.

In the Czech Republic, the motion for the MLI had been discussed and approved prior to the signing of the MLI. The motion was approved with the intention to implement only the minimum standards.

Transparency for tax consultants

Gradually, provisions are being approved globally which aim to limit tax evasions done with the help of artificially constructed transactions.

The leading power in this is the European Commission which, on June 21^st, 2017, proposed new strict rules to ensure transparency for tax experts (tax advisors, accountants, lawyers) who propose or suggest tax planning strategies to their clients. Tax experts and others as well (in some cases for example companies who had received advisory services) will be obliged to give reports on cross-border strategies which show signs of tax planning and which could lead to deprivation of public budgets.

The European Commission uses the recent Panama Papers case to advocate these regulations. According to the Commission, this case shed light on some activities conducted by some tax experts who help companies and private persons towards tax evasions.

Written by: Štěpán Hrubý

Edited by: Daniela Císařovská