At the April 2017 International Tax Conference of the International Fiscal Association Canada, a representative of the Department of Finance ("Finance") again confirmed that it is Canada's intention to adopt The Organisation for Economic Co-operation and Development's ("OECD") Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the "MLI"). In particular, if procedurally possible, Canada, alongside a number of other countries, intends to sign the MLI at the formal OECD signing ceremony to be held in Paris on June 7, 2017. At the same time, Finance also laid out a hypothetical best-case scenario for the timing of the ratification and entry into force of the MLI with respect to Canada's tax treaty partners that also adopt the MLI in a timely fashion. Based on this scenario, the MLI could come into effect, likely at the earliest, on January 1, 2019, with respect to withholding taxes (e.g. dividend withholding), and for all other taxes, in the first taxable period beginning after June 2019 (e.g. on January 1, 2020, for a taxpayer whose taxation year is the calendar year).

Canada was a member of the ad hoc group that developed the MLI and had already announced in the 2017 Budget that it would pursue its signature and undertake the necessary domestic processes to give it effect. The April announcement, however, represents the first guidance Finance has given as to the possible timing of these steps. However, Finance indicated that the ratification process could be delayed depending on whether, and how quickly, the necessary steps are taken by the government and Parliament.

The coming into force of the MLI could have an important impact on Canada's tax treaties with other countries that ratify the MLI. Once in effect, the MLI will in effect modify Canada's existing bilateral treaties with other ratifying countries in order to implement the tax treaty-related base erosion and profit shifting ("BEPS") measures. The aim of the MLI is to implement BEPS Actions 2 (neutralizing the effects of hybrid mismatch arrangements), Action 6 (preventing treaty abuse), Action 7 (preventing the artificial avoidance of permanent establishment ("PE") status) and Action 14 (making dispute resolution mechanisms more effective) into existing tax treaties without the need for bilateral treaty negotiations with each of Canada's tax treaty partners.

As such, the MLI is not itself an amending protocol to any particular Canadian tax treaty, but instead will operate alongside such treaties to replace, modify or supplement their provisions, depending both on the choices made by Canada with respect to the MLI as well as the parallel choices made by countries with which Canada has existing tax treaties that also adopt the MLI. Through a system of reservations, Canada must choose which of its treaties will be covered by the MLI (known as "covered tax agreements" ("CTA")) and which provisions of the MLI will apply to each CTA. For greater certainty, Canada and the other signatories must also identify the existing articles of each CTA that will be replaced or amended by the MLI (known as making a notification). These articles will only be impacted by the MLI to the extent that both countries agree; any incompatibility will need to be negotiated between them.

Countries adopting the MLI are only required to adopt two provisions (known as minimum standards): the anti-treaty abuse provision, and a mutual agreement (arbitration) procedure. Even then, countries are provided with options as to how to meet these minimum standards. The other provisions of the MLI, which address the artificial avoidance of PEs through commissionaire arrangements and abuse of the specific activity exemption, and the use of hybrid mismatch and triangulation arrangements to obtain treaty benefits, are optional. To date, Finance has not disclosed which of the MLI measures it will adopt and which configuration of options it will choose. However, based on the Budget 2016 commitment to addressing treaty abuse in accordance with the minimum standard of the BEPS Project, it is expected that Canada will adopt the treaty anti-abuse minimum standard in the MLI.

The treaty anti-abuse minimum standard requires two things. First, it requires that Canada to specify that the purpose of its treaties is to eliminate double taxation without permitting reduced or non-taxation through tax evasion or avoidance, including treaty shopping.

Second, it requires that Canada adopt one of two approaches to treaty anti-abuse rules: a general anti-abuse rule (the principal purpose test ("PPT")) or a specific anti-abuse rule (a limitation on benefits (" LOB") rule). The PPT generally provides that treaty benefits will be denied when one of the principal purposes of an arrangement is to obtain a treaty benefit in a way that is not in accordance with the purpose of the relevant treaty provisions. An LOB rule requires satisfaction of a series of tests in order to qualify for treaty benefits. Based on the consultations on treaty-shopping avoidance rules that were conducted by Finance commencing in 2013, which included a consideration of a domestic anti-treaty shopping rule similar to the PPT, (that has been abandoned in favour of the OECD's MLI approach), it is our expectation that Canada will likely adopt the PPT approach.

We should have significantly more clarity on the impact of the MLI if Canada meets its goal of participating in the June 7, 2017 signing ceremony, as signatories are required to provide a preliminary list of notifications and reservations at signing. This list will only be finalized once the ratification is completed.

Following signature, Canada will need to ratify the MLI. To do so, Canada will first need to table the MLI in the House of Commons for a 21-day sitting-day period. In its hypothetical scenario, Finance indicated that the earliest this would happen is likely early October 2017, which would mean that the 21-day period would expire in November, 2017. A bill will then be prepared to implement the MLI into domestic law. Continuing with Finance's example, the bill could be introduced in late 2017/early 2018. It will then need to be debated both in the House of Commons and the Senate, as well as reviewed by the relevant House of Commons and Senate committees. Once the bill has been passed by both Houses, Royal Assent would be required; in Finance's example, this would take place by mid-2018.

In this best-case scenario, Canada would then be able to give the OECD notice of its ratification of the MLI sometime in August 2018. Assuming that the MLI pre-requisite of four other countries having also given notice by that time has been met, the MLI would enter into force with respect to Canada three calendar months later (i.e., around December 1, 2018). As noted-above, the provisions of the MLI would then come into effect as follows: (i) with respect to withholding taxes, on the first day of the next calendar year (i.e., January 1, 2019), and (ii) with respect to all other taxes, for taxable periods beginning after June 2019 (e.g. January 1, 2020, for a taxpayer whose taxation period is the calendar year).

Unlike some of its counterparts (e.g., Australia and New Zealand), Canada has not yet indicated that it intends to solicit public comment on the impacts of the MLI. If it were to do so, given Canada's extensive treaty-network, this procedure could be quite involved and the hypothetical best-case timeline laid out by Finance may be, as they suggested, optimistic. Furthermore, the MLI will only apply to cases where both Canada and its treaty partner have opted-in to the MLI in a consistent fashion.

In practical terms, taxpayers having inbound and outbound international structures that rely on the benefits of one or more of Canada's bilateral tax treaties should follow these developments closely, but will not be able to fully assess their impact until we have more information on the choices that Canada and its counter-parties will make. Assuming that Canada meets the goal of participating in the June 7, 2017 signing ceremony, much more detailed information on the potential impact of the MLI in the Canadian context should be able to gleaned from the preliminary reservations and approaches that Canada is required to provide.

Gowling WLG will be keeping you informed of these developments as they happen.