BEPS Action Plans noted in our previous posts had recommended changes to be brought in to domestic laws and the tax treaties among the countries. The former being easy to achieve; the latter was a herculean task. As arranging to amend 2000 plus tax treaties existing globally with all the time involved for discussion and negotiations, finding a more straightforward way was essential.
Hence an ad-hoc group was formed, as part of BEPS Action Plan 15, to develop the MULTILATERAL CONVENTION
TO IMPLEMENT TAX TREATY RELATED MEASURES
TO PREVENT BASE EROSION AND PROFIT SHIFTING to ensure the swift and consistent tax treaty-related BEPS measures.
Throughout our posts we will use the term ‘Multilateral instruments’ or MLI for ‘Multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting’.
What is the Multilateral Instrument?
The MLI is a single agreement that enables modifying the multiple bilateral tax treaties in a synchronized manner to implement tax treaty-related BEPS measures recommended under BEPS Action Plans 2, 6, 7, and 14. The MLI will modify all the Covered Tax Agreements.
How is MLI different from the Protocol?
The Protocol applies to the single existing tax treaty, which directly amends the tax treaty’s text. Whereas the MLI will not replace the current tax treaties but will use alongside the existing tax treaties and either :
- Supplement,
- Complement,
- Supersede, or
- Modify
their application.
A little history of MLI
The finalized version of MLI and the related Explanatory statements were in-principle adopted by more than 100 countries on 21st November 2016 in Paris.
To participate in MLI, the countries need to sign the MLI. At the time of signature, each signatory is expected to submit the provisional list of its tax treaties that the country wishes to modify by the provisions of the MLI and the provisional lists of various options selected/ opt-ins or opt-outs by that jurisdiction.
The first signing ceremony of MLI took place on 7th June 2017, where 67 countries signed the MLI. As of 29th September 2020, 94 Countries have signed the MLI.
Timeline of MLI?
The MLI is binding on a signatory only after :
- each signatory ratifies the MLI as per its internal domestic procedures,
- deposits the ratified copy of MLI with the Depositary (i.e., the Secretary-General of the OECD)
- along with the final MLI position on reservations, notifications, Opt-ins, and opt-outs.
MLI Articles
The MLI contains seven parts spread across 39 Articles. The below chart gives the summary of the Parts of the MLI along with the Articles
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