On 7 June 2017, senior officials and representatives of 67 jurisdictions (including Mainland China, who also represented Hong Kong SAR) gathered in Paris to participate in the signing ceremony for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting or the Multilateral Instrument (MLI). The provisional MLI position for each signing jurisdiction is now published on the website of the Organization for Economic Cooperation and Development (OECD).

China and Hong Kong SAR have basically opted in to the provisions of the MLI which represent the minimum standards (e.g. the principal purpose test (PPT) for preventing treaty abuse and the requirement for the full implementation of Mutual Agreement Procedures (MAP) e.g. allowing a minimum three-year period for a person to present its case for MAP) and opted out some of the provisions that are not mandatory (e.g. artificial avoidance of permanent establishment (PE); provisions addressing hybrid mismatches). However, it should be noted that the MLI position of each signing jurisdiction currently published on the OECD’s website is only provisional and may still be subject to change before ratification. In addition, the final impact of the MLI on a particular double tax treaty of one jurisdiction/contracting state may depend not only on the MLI position of that contracting state but also the MLI position of the other contracting state of that tax treaty.

Chinese and Hong Kong enterprises having cross-border transactions or investments should revisit their existing or potential business structures and operations, taking into account not only the MLI position adopted by its own jurisdiction but also those adopted by their tax treaty partners.

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