Spain: Entry into effect of the OECD multilateral convention

Spain has notified confirmation of the completion of its internal procedures for the entry into effect of the provisions of the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). As a result, those tax treaties identified by Spain as covered by the MLI will be amended by the MLI with effect from dates as early as July 2022.

Background

Action 15 of the 2015 BEPS project dealt with the need for a multilateral instrument to enable countries to modify their bilateral tax treaties to implement BEPS-related treaty measures, including hybrid mismatches, double tax treaty abuse and double non-taxation, the permanent establishment rules as well as dispute resolution mechanisms. In order to avoid the need for multiple bilateral treaty amendments, the OECD developed a multilateral instrument to implement the necessary changes which came into effect in July 2018.

Spain implements the MLI

On 28 September 2021, Spain deposited its instrument of ratification for the MLI with the OECD. The instrument entered into force on 1 January 2022. However, Spain made a reservation under Article 35(7)(a), which postponed entry into force of the MLI changes until Spain notified confirmation of completion of its internal procedures.

Spain has now formally made the relevant notifications in relation to 50 of the 88 tax treaties covered by the MLI. If the relevant formal conditions for entry into force are also in place in the counterparty jurisdiction (if required), the provisions of the MLI between Spain and the relevant counterparty jurisdictions will now come into force.

Each of the MLI provisions may take effect on different dates. With respect to taxes withheld at source the MLI provisions will enter into effect with effect from 1 January 2023. For taxes on income or gains, the changes introduced by the MLI will apply for periods beginning on or after the expiration of a period of six calendar months from the 30 days after the date of receipt of the latest notification by each contracting jurisdiction. For Spain, it is expected that the changes will come into effect from 1 January 2023 as well.

The provisions within the MLI governing mutual agreement procedures or arbitration will take effect for cases submitted to the competent authority from 1 July 2022, unless the specific tax treaty prevents it.

It should be borne in mind that the specific impact on each tax treaty will need to be considered separately based on the position and status of ratification procedure in the other Contracting State.

The MLI may have a significant impact for multinational groups with a Spanish presence and more generally for any inbound and outbound cross border investment in relation to Spain. Areas potentially impacted by the MLI will include treaty shopping and anti-abuse rules, tax transparent entities, permanent establishment implications, dividends and capital gains taxation, or arbitration and mutual agreements. International groups and investors with presence or interests in Spain should review their structures to anticipate the impact that these provisions will have on their current and future operations.