After determining the Date of Entry into Force of MLI, the next step is determining the Date of Entry into effect.
Why is it important? Date of Entry into Force of the MLI leads to cut off date for the taxes’ applicability.
What is the “cut-off” date?
Once the MLI has come into force for both the countries of a Covered Tax Agreement, the later entry into force becomes the cut-off date.
Illustration:
Let us explain this with two examples :
Singapore – India CTA.
Canada – Singapore CTA
How to Determine the Date of Entry into Force?
Date of Entry into Force is to calculated separately for two different categories:
- Withholding taxes
- Other taxes.
Withholding taxes
The MLI shall enter into effect for the taxable events :
- Arising on or after the first day of the Calendar year
- That begins after the “Cut-off” date.
Countries have the option to substitute the “Calendar year” to “Taxable period.”
Illustration:
Continuing our previous example
Singapore – India CTA
Canada – Singapore CTA
Note: India has opted for a Taxable period (April to March) in Article 35 of the MLI, and Singapore follows the Calendar Year (January – December).
For Other Taxes
The MLI shall enter into effect :
- For the taxable period
- Beginning on or after the expiration of six calendar months
- From the “cut-off date.”
Illustration:
Continuing our previous example
Singapore – India CTA
Canada- Singapore CTA
Note:
Whereas there can be only one “date of entry into Force” for MLI qua one country, there can be different “date of entry into effect of MLI qua various CTA.”