In our previous post, we have discussed the questions of Why and How relating to the Multilateral Instruments (MLI). So today, we move forward to understand how to read an MLI.
Though MLI intended to simplify and create one treaty to bring changes in all other, it will not be easy to interpret if we cannot eschew the fundamental concepts driving the MLI.

So let’s begin!
What is Covered Tax Agreements (CTA)?
Multilateral Instruments are developed to be uniform and also flexible for the countries agreeing. It respects the sovereign power of all nations, and hence countries are free to decide:
- Whether to sign the MLI or not,
- Which bilateral treaties should be modified by the MLI; and
- Which provisions of the MLI should be accepted or not.
As discussed in our introductory post, MLI applies only to Covered Tax Agreements. A Covered Tax Agreement is the existing bilateral tax treaty that is to be modified by the MLI provisions.
When does the existing bilateral tax treaty become a Covered Tax Agreement?
For treating an existing bilateral treaty as a Covered Tax Agreement, the following conditions should be satisfied:
- Both the Contracting jurisdictions to an existing bilateral tax treaty have signed the MLI,
- Both the Contracting jurisdiction to an existing bilateral tax treaty have ratified the MLI as per their domestic procedure,
- Both the Contracting jurisdiction to an existing bilateral tax treaty have deposited the ratified copy of MLI with the depository, and
- In the deposited copy, both the contracting jurisdiction to an existing bilateral tax treaty have listed each other in their tax treaties, which are to be modified by MLI.
Understanding CTA with the MLI submitted
We will understand these conditions with the MLI deposited by the Netherlands.
While depositing the ratified copy of MLI with Depositary, Netherlands notified 81 countries in the list of its tax treaties, which are to be modified by the MLI.
Among all the bilateral tax treaties entered by the Netherlands, only those tax treaties will become CTA, which:
- Where the other country is also a signatory to MLI
- The country has ratified and deposited the ratified copy of MLI with the depository
- In the ratified and deposited copy, Netherlands is notified in the list of its tax treaties to be modified.
We will discuss all the four situations with examples

When the country is not the signatory to the MLI
So will MLI apply to The kingdom of Netherlands and the United States of America tax treaty?
The Kingdom of Netherlands is a signatory to the MLI and has notified the United States in the list of its tax treaties modified by MLI. But the United States is not the signatory to MLI. Hence the tax treaty between the United States and the Kingdom of Netherlands will not be a Covered Tax Agreement and will not attract MLI.
When the country has not ratified and deposited the MLI
So will MLI apply to The kingdom of the Netherlands and the China tax treaty?
The Kingdom of Netherlands is a signatory to the MLI and has notified China of the tax treaties modified by MLI. Though China is the signatory to the MLI, as of September 30, 2020, it has not deposited the ratified copy of MLI with the depository. Hence the tax treaty between China and the Kingdom of Netherlands will not be a Covered Tax Agreement and thus will not attract MLI.
When the country has not notified another country in the MLI
So will MLI apply to India and the Germany tax treaty?
India is a signatory to the MLI and has notified Germany in the list of its tax treaties, which are to be modified by MLI. Germany is the signatory to the MLI and has deposited the ratified copy of MLI with the depository, but not listed India in the list of tax treaties to be modified. Hence the tax treaty between Germany and India will not be a Covered Tax Agreement and hence will not attract MLI.
When all the four conditions are satisfied
So will MLI apply to the kingdom of Netherlands and Canada Tax Treaty?
The Kingdom of Netherlands is a signatory to the MLI and has notified Canada in the list of its tax treaties, which are to be modified by MLI. Canada is the signatory of the MLI. It has deposited the ratified copy of MLI with the depository and listed the Kingdom of Netherlands in the list of tax treaties to be modified. Hence the tax treaty between Canada and the Kingdom of Netherlands will be a Covered Tax Agreement and thus will attract MLI.
Please find below the links to MLI submitted by the Countries