Part 1 of Multilateral Convention To Implement Tax Treaty Related Measures To Prevent Base Erosion And Profit Shifting consists of two Articles, namely, Article 1 – Scope of the Convention and its operation and Article 2- Interpretation of Terms.
Article 1- Scope of the Convention
Article 1 of the MLI describes its scope as:
“This Convention modifies all Covered Tax Agreements as defined in Subparagraph a) of Paragraph 1 of Article 2 ( Interpretation of Terms) .”
The MLI does not act as a protocol to a treaty. The MLI is a separate independent agreement applied to the relevant treaty provision, which it seeks to modify.
Article 2 – Interpretation of Terms
Terms defined under MLI
Covered Tax Agreement
Article 2(1) of MLI defines ‘Covered Tax Agreements’ to mean a double tax avoidance agreement relating to taxes on income in force between two or more parties. It is irrespective that the agreement may include taxation of other than income ( for instance – capital gains, wealth tax).
If the double tax agreement deals solely with shipping or transport or other social security arrangements, then it is not included under the definition.
As per Article 2(1)(a)(ii) of MLI, the MLI will modify only those double tax agreements that :
- Each Party has specifically identified and listed in a notification to the Depository
- As well as any amending or accompanying instruments to it
- Which is determined by title, names of the parties, date of signature, and if applicable at the time of notification, the date of entry into force).
To view the decision tree diagram: click here.
Article 2(1)(b) of the MLI, defines the term ‘Party’ to mean :
- States, and
- Jurisdictions which have signed the MLI under Article 27(1)(b) or (c) [Signature and Ratification, Acceptance or Approval] for which the MLI is in force according to Article 34 [Entry into Force].
According to Article 2(1)(c) of the MLI, the term ‘Contracting Jurisdiction’ means the parties to a Covered Tax Agreements. It refers to the States, jurisdictions, or territories that are parties to a CTA.
The MLI does not use the term ‘Contracting States’ found commonly in tax treaties for two reasons:
- There are tax treaties where one of the contracting parties is a non-State jurisdiction to which the MLI could apply in the future
- An alternative, ‘Contracting Party’ could confuse given that ‘Party’ refers to a party to the MLI.
Article 2(1)(d) of the MLI defines the term ‘Signatory’ to mean a State or Jurisdiction which has signed this Convention but for which the Convention is not yet in force.
Terms undefined in the MLI
Paragraph 2 of Article 2 of the MLI diverts the definition of all the undefined terms to the respective Covered Tax Agreements unless the context otherwise requires.
Article 2(2) of the MLI words are in the same lines as Article 3(2) of the OECD Model Convention.
The rule refers to the relevant Covered Tax Agreement for the meaning of an undefined term in the MLI. The exception to this rule is where the context of the MLI points towards an autonomous interpretation.