MLI (including Overview of BEPS) – A Compendium
3. Preventing the Artificial Avoidance of Permanent Establishment
Status, Action 7 - 2015 Final Report (Published on 5 October
2015)
Tax Treaty-Related BEPS Measure Related Article of
the Convention
Artificial avoidance of PE status through Articles 12 and 15
commissionnaire arrangements and similar strategies
(page 15)
Artificial avoidance of PE status through the specific Article 13
activity exemptions (page 28)
Splitting-up of contracts (page 42) Article 14
4. Making Dispute Resolution Mechanisms More Effective, Action
14 - 2015 Final Report (Published on 5 October 2015)
Tax Treaty-Related BEPS Measure Related Article of
the Convention
Elements of a minimum standard to ensure the Articles 16 and 17
timely, effective and efficient resolution of treaty-
related disputes (page 13), and best practices (page
28)
Commitment to mandatory binding MAP arbitration Articles 18 through
(page 41) 26
1092
Ann 3 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY. . .
3 Multilateral Convention to Implement Tax
Treaty Related Measures to Prevent Base
ANNEXURE Erosion and Profit Shifting
THE MULTILATERAL INSTRUMENT
A turning point in tax treaty history
“The conclusion of this multilateral instrument marks a new turning point
in tax treaty history. We are moving towards rapid implementation of the
far-reaching reforms agreed under the BEPS Project in more than 1,200 tax
treaties worldwide. In addition to saving the signatories from the burden
of bilaterally re-negotiating these treaties, the Convention will result in
more certainty and predictability for businesses, and a better functioning
international tax system for the benefit of our citizens.”
Angel Gurría
OECD Secretary-General
100-240 billion USD annual revenue loss due to BEPS
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that
exploit gaps and mismatches in tax rules to artificially shift profits to low
or no-tax locations where there is little or no economic activity, resulting in
little or no overall corporate tax being paid. Conservative estimates indicate
annual losses of anywhere from 4 to 10% of global corporate income tax
revenues, i.e. USD 100-240 billion annually.
1093
MLI (including Overview of BEPS) – A Compendium
Working together in the OECD/G20 BEPS Project, over 60 countries jointly
developed 15 actions to tackle tax avoidance, improve the coherence of
international tax rules and ensure a more transparent tax environment.
Leaders of OECD and G20 countries, as well as other leaders, urged
the timely implementation of this comprehensive BEPS package. The
Multilateral Instrument (MLI) responds to this call for swift action by
implementing the BEPS measures which require changes to tax treaties.
78 jurisdictions covered 1,200+ matched treaties
On 7 June 2017, Ministers and other high-level representatives of over 70
jurisdictions participated in the first signing ceremony of the MLI in Paris.
At this ceremony, the MLI was signed by 67 countries and jurisdictions,
covering 68 jurisdictions from all continents and all levels of development.
Since then, 10 additional jurisdictions have joined the MLI.
Signatories of the MLI may choose which existing tax treaties they would
like to modify using the MLI. Once a tax treaty has been listed by the two
parties, it becomes an agreement to be covered by the MLI. The current
signatories have listed over 2,500 treaties, already leading up to over 1,200
matched agreements.
The number of modified tax treaties is expected to increase continually as
many additional jurisdictions are preparing for signature of the MLI.
The MLI shall enter into force on 1 July 2018.
MLI: The fastest way to strengthen tax treaties
The MLI allows jurisdictions to swiftly implement measures to strengthen
existing tax treaties to protect governments against tax avoidance strategies
that inappropriately use tax treaties to artificially shift profits to low or no-
tax location.
The measures to be implemented will put an end to treaty abuse and “treaty
shopping” by transposing in existing tax treaties jurisdictions’ commitment
to minimally include in their tax treaties tools to ensure these treaties are
used in accordance with their intended object and purpose.
The MLI will further enhance dispute resolution mechanisms in accordance
with minimum standards agreed by over 90 countries. In addition, 28
jurisdictions have already opted in to introduce an arbitration procedure to
their tax treaties, further improving tax payer certainty.
1094
Ann 3 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY. . .
MLI: From Conception to Entry into Effect
FEB 2013 Start BEPS Project
On 12 February 2013 the report addressing Base Erosion
and Profit Shifting was published recommending the
development of an action plan to address BEPS issues in
a comprehensive manner.
JUL 2013 Endorsement of the BEPS Project
In July 2013, the OECD Committee on Fiscal Affairs (CFA)
submitted the BEPS Action Plan to the G20 identifying 15
actions to address BEPS in a comprehensive manner, and
set out deadlines to implement those actions.
SEP 2014 Call for the development of the MLI
On 16 September 2014, the Action 15 interim report of
the BEPS Action Plan called for the development of a
multilateral instrument to implement tax treaty-related
BEPS measures developed in the course of the work on
BEPS and modify bilateral tax treaties.
FEB 2015 Start MLI negotiations by Ad hoc Group of over 100
jurisdictions
Based on the Action 15 interim report, a mandate to set
up the Ad hoc Group for the development of a multilateral
instrument was developed by the CFA in February 2015
and endorsed by the G20 Finance Ministers and Central
Bank Governors, open to the participation of all interested
countries on an equal footing.
OCT 2015 Adoption BEPS package; already embraced by now
adopted by over 110 jurisdictions
On 5 October 2015, the final BEPS package was published
and subsequently endorsed by the G20 Finance Ministers
and Leaders comprising reports on each of the 15 actions
identified in the BEPS Action Plan.
NOV 2016 Adoption of MLI and Explanatory Statement by over 100
jurisdictions
On 24 November 2016, the ad hoc Group concluded the
negotiations and adopted the Text of the MLI as well as
its accompanying Explanatory Statement.
1095
MLI (including Overview of BEPS) – A Compendium
JUN 2017 First high-level signing ceremony with over 70
ONGOING governments participating
2017 onwards
On 7 June 2017, a high-level signing ceremony took place
in Paris.
Additional jurisdictions sign MLI
The MLI remains open for signature and over
10 jurisdictions have already joined the MLI
since the first signing ceremony.
Signatories deposit their instrument of ratification after
completing domestic procedures. Completion of steps to
undertake to sign the MLI by many other jurisdictions
expected to sign the MLI.
• Signatories ratify the MLI in accordance with their
domestic procedures.
• The MLI will enter into force on 1 July 2018 (the
first day of the month that follows three months after
the deposit of the fifth instrument of ratification,
acceptance or approval).
Preparation of synthesised texts of tax treaties modified
by the MLI by individual jurisdictions (either due to
domestic requirements or in order to ensure clarity and
transparency for tax administrations and taxpayers).
Key Features
Jurisdictions involved
• Instrument developed by an Ad hoc Group of 100+
jurisdictions
• Signed by developed and developing economies around the
world
• Instrument open for signature by any country
Measures included
• Includes measures against hybrid mismatch arrangements
(Action 2) and treaty abuse (Action 6), strengthened definition
of permanent establishment (Action 7) and measures to make
mutual agreement procedures (MAP) more effective (Action
14), including provisions on MAP arbitration.
1096
Ann 3 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY. . .
Tax treaties covered
• Parties can choose tax treaties to be modified by the MLI
• Parties remain free to make subsequent amendments to their
modified tax treaties through bilateral negotiations
Flexibility
• Flexibility with respect to ways of meeting BEPS minimum
standards on treaty abuse and dispute resolution
• Possibility to opt out of provisions which do not reflect a
BEPS minimum standard with the possibility to opt in later
• Possibility to apply optional provisions and alternative
provisions at any time where there are multiple ways to
address BEPS
Clarity & Transparency
• Explanatory Statement available and additional materials
• Notifications of Covered Tax Agreements, reservations,
options and affected existing provisions (MLI Positions)
to identify modifications. MLI positions provided by each
jurisdiction available on the OECD website
• MLI Matching Database that makes projections on how the
MLI modifies a specific tax treaty covered by the MLI by
matching information from MLI Positions
• Interactive flowcharts of each substantive provision as well
as an application toolkit
Languages
• English and French text authentic
• Translations being developed by individual countries and
published on the OECD website (oe.cd/mli)
1097
MLI (including Overview of BEPS) – A Compendium
Signatories and Group members
Jurisdictions Andorra Georgia Kingdom of the Nether-
covered by Argentina Germany lands (inc. Curaçao)
the MLI as of Armenia Greece New Zealand
24 January Australia Guernsey Nigeria
2018 Austria Hungary Norway
Barbados Iceland Pakistan
Other Belgium India Panama
members of Bulgaria Indonesia Poland
the ad hoc Burkina Faso Ireland Portugal
Group on the Cameroon Isle of Man Romania
MLI Canada Israel Russian Federation
Chile Italy San Marino
China Jamaica Senegal
(inc. Hong Kong) Japan Serbia
Colombia Jersey Seychelles
Costa Rica Korea Singapore
Côte d’Ivoire Kuwait Slovak Republic
Croatia Latvia Slovenia
Cyprus Liechtenstein South Africa
Czech Republic Lithuania Spain
Denmark Luxembourg Sweden
Egypt Malaysia Switzerland
Fiji Malta Tunisia
Finland Mauritius Turkey
France Mexico United Kingdom
Gabon Monaco Uruguay
Albania Estonia* Peru
Algeria* Guatemala Philippines
Azerbaijan Haiti Qatar
Bahrain Jordan Saudi Arabia
Bangladesh Kazakhstan* Sri Lanka
Belize Kenya Sudan
Benin Lebanon* Swaziland*
Bermuda Lesotho Tanzania
1098
Ann 3 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY. . .
Bhutan Liberia Thailand
Bosnia and Marshall Islands Uganda
Herzegovina Mauritania Ukraine
Brazil Moldova United Arab Emirates
Brunei Darussalam Mongolia United States
Democratic Republic Morocco Vietnam
of Congo Oman* Zambia
Dominican Republic Papua New Zimbabwe
Guinea
Organisations • African Tax Administration Forum (ATAF);
participating
in ad hoc • Association of Tax Authorities of Islamic Countries (ATAIC);
Group as
observers • Centre de rencontres et d’études des dirigeants des
administrations fiscales (Credaf);
• Commonwealth Association of Tax Administrators (CATA);
• European Union (EU);
• Inter-American Centre of Tax Administrations (CIAT);
• International Monetary Fund (IMF);
• Intra-European Organisation of Tax Administrations (IOTA);
• World Bank Group (WBG)
* These jurisdictions have expressed their intent to sign the MLI.
Six questions on the MLI
How does Abuse of tax treaties is an important source of base erosion
the MLI and profit shifting (BEPS). The MLI helps the fight against
help the BEPS by implementing the tax treaty-related measures
fight against developed through the BEPS Project in existing bilateral
BEPS? tax treaties in a synchronised and efficient man- ner.
These measures will prevent treaty abuse, improve dispute
reso- lution, prevent the artificial avoidance of permanent
establishment status and neutralise the effects of hybrid
mismatch arrangements.
1099
MLI (including Overview of BEPS) – A Compendium
Which As of 24 January 2018, the MLI has been signed by
jurisdictions 76 signatories, covering 78 jurisdictions. Additional
have signed jurisdictions have expressed their intention to sign the MLI,
up? with many jurisdictions already preparing for signature of
the MLI. An up-to-date list of the Signatories is available
How will at oe.cd/mli.
I know if
an existing The MLI modifies tax treaties that are “Covered Tax
tax treaty is Agreements”. A Covered Tax Agreement is an agreement for
modified by the avoidance of double taxation that is in force between
the MLI? Parties to the MLI and for which both Parties have made a
notification that they wish to modify the agreement using
Can the MLI. Lists of notified tax treaties by jurisdiction can be
Signatories found in the MLI Positions available at oe.cd/mli.
opt in for
certain MLI The provisional MLI Position of each Signatory indicates
provisions the tax treaties it intends to cover, the options it has chosen
later in and the reservations it has made. Signatories can amend
time (after their MLI Positions until ratification. Even after ratification,
signature)? Parties can choose to opt in with respect to optional
provisions or to withdraw reservations. For example, while
When will 28 Signatories have chosen to apply the MLI arbitration
the modifi- provisions, additional Signatories can choose to apply those
cations provisions later.
become
effective? Early 2019, the first modifications to covered treaties will
become effective. The timing of entry into effect of the
modifications is linked to the completion of the ratification
procedures in the jurisdictions that are parties to the
covered tax treaty.
How will The Signatories will inform the OECD of the completion
the OECD of their ratification procedures. As the Depositary of the
provide MLI, the OECD will be tracking ratification procedures
further completed by the MLI Signatories and will make available
clarity? to the public all relevant information on effects of the MLI
provisions.
The OECD Secretariat is developing tools and guidance on
the MLI. Interactive flowcharts on each of the substantive
MLI Articles and the MLI Toolkit on the application of
the MLI (which includes a Matching Database making
projections of the MLI effects) are already available at oe.cd/
mli.
For more Frequently Asked Questions visit oe.cd/mli.
1100
Ann 3 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY. . .
Group photo of the Signatories participating in the
MLI Signing Ceremony held on 7 June 2017 at the OECD Headquarters in Paris
1101
MLI (including Overview of BEPS) – A Compendium
4 Applying the Multilateral Instrument
Step-by-step
ANNEXURE
Applying the MULTILATERAL INSTRUMENT Step-by-Step
<ĞLJ ĚŽĐƵŵĞŶƚƐ ƚŽ ĂƐƐĞƐƐ ŵŽĚŝĮĐĂƟŽŶƐ ďLJ ƚŚĞ D>/ &ŝǀĞ ƐƚĞƉƐ ĨŽƌ Step ͻ ŶƚƌLJ ŝŶƚŽ ĨŽƌĐĞ ŽĨ ƚŚĞ D>/
The MLI ĂƉƉůŝĐĂƟŽŶ ŽĨ ƚŚĞ D>/
1
^ƉĞĐŝĮĐ ƚĂdž ĂŐƌĞĞŵĞŶƚ
dŚĞ D>/ ƉŽƐŝƟŽŶ ŽĨ Ă Step ͻ ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ
ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ
dŚĞ D>/ ƉŽƐŝƟŽŶ ŽĨ ƚŚĞ ŽƚŚĞƌ 2
ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ
Step ͻ ZĞƐĞƌǀĂƟŽŶƐ ĂŶĚ ĐŚŽŝĐĞ ŽĨ ŽƉƟŽŶĂů ƉƌŽǀŝƐŝŽŶƐ
3
Step ͻ EŽƟĮĐĂƟŽŶƐ ŽĨ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶƐ
4
Step ͻ ŶƚƌLJ ŝŶƚŽ ĞīĞĐƚ ŽĨ ƚŚĞ D>/
5
Step ͻ ŶƚƌLJ ŝŶƚŽ ĨŽƌĐĞ ŽĨ ƚŚĞ D>/͗ sĞƌŝĨLJ ŝĨ ƚŚĞ D>/ ŚĂƐ ĞŶƚĞƌĞĚ ŝŶƚŽ ĨŽƌĐĞ
1
;ŝͿ /Ɛ ƚŚĞ D>/ ŝƚƐĞůĨ ŝŶ ĨŽƌĐĞ͍ ;,ĂǀĞ ĮǀĞ ũƵƌŝƐĚŝĐƟŽŶƐ F YES: Go to (ii) DŽƌĞ ŝŶĨŽƌŵĂƟŽŶ͗
ĚĞƉŽƐŝƚĞĚ ƚŚĞ ŝŶƐƚƌƵŵĞŶƚ ŽĨ ƌĂƚŝĨŝĐĂƚŝŽŶ͕ ƌƟĐůĞ ϯϰ
ĂĐĐĞƉƚĂŶĐĞ Žƌ ĂƉƉƌŽǀĂů͍Ϳ F NO: The MLI does not apply.
;ŝŝͿ /Ɛ ƚŚĞ D>/ ŝŶ ĨŽƌĐĞ ĨŽƌ ďŽƚŚ ŽŶƚƌĂĐƚŝŶŐ F YES: The MLI could apply to džƉůĂŶĂƚŽƌLJ ^ƚĂƚĞŵĞŶƚ͕
:ƵƌŝƐĚŝĐƚŝŽŶƐ ƚŽ ƚŚĞ ƚĂdž ĂŐƌĞĞŵĞŶƚ͍ ; ƌĞ ďŽƚŚ ƉĂƌĂ͘ ϯϮϬͲϯϮϯ
ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶƐ WĂƌƟĞƐ ƚŽ ƚŚĞ D>/͍Ϳ the tax agreement. Go to
Step 2
F NO: The MLI does not apply.
Step ͻ ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ͗ sĞƌŝĨLJ ŝĨ ƚŚĞ ƚĂdž ĂŐƌĞĞŵĞŶƚ ŝƐ Ă ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ
2
;ŝͿ Ž ďŽƚŚ ŽŶƚƌĂĐƚŝŶŐ :ƵƌŝƐĚŝĐƚŝŽŶƐ ůŝƐƚ ƚŚĞ F YES: Go to (ii) DŽƌĞ ŝŶĨŽƌŵĂƟŽŶ͗
ƌƟĐůĞ Ϯ;ϭͿ;ĂͿ
ƚĂdž ĂŐƌĞĞŵĞŶƚ ŝŶ ƚŚĞŝƌ D>/ ƉŽƐŝƟŽŶƐ ĂƐ ĂŶ F NO: The MLI does not apply
ĂŐƌĞĞŵĞŶƚ ƚŽ ďĞ ĐŽǀĞƌĞĚ ďLJ ƚŚĞ D>/͍
to the tax agreement.
;ŝŝͿ /Ɛ ƚŚĞ ƚĂdž ĂŐƌĞĞŵĞŶƚ ŝŶ ĨŽƌĐĞ͍ F YES: The MLI can apply to the džƉůĂŶĂƚŽƌLJ ^ƚĂƚĞŵĞŶƚ͕
tax agreement (The tax ƉĂƌĂ͘ ϮϱͲϯϯ
1102 agreement is a Covered
Tax Agreement). Go to &ůŽǁĐŚĂƌƚ ŽŶ ƌƟĐůĞ Ϯ
Step 3
F NO: The tax agreement
will be a Covered Tax
Agreement after entry
into force.
Ann 4 — APPLYING THE MULTILATERAL INSTRUMENT STEP-BY-STEP
Step ͻ ZĞƐĞƌǀĂƟŽŶƐ ĂŶĚ ĐŚŽŝĐĞ ŽĨ ŽƉƟŽŶĂů ƉƌŽǀŝƐŝŽŶƐ͗ /ĚĞŶƟĨLJ ǁŚŝĐŚ D>/ ƉƌŽǀŝƐŝŽŶƐ ĂƉƉůLJ
3
dŚŝƐ ƐƚĞƉ ŵƵƐƚ ŐĞŶĞƌĂůůLJ ďĞ ĨŽůůŽǁĞĚ ƚŽ ŝĚĞŶƟĨLJ ǁŚŝĐŚ D>/ ƉƌŽǀŝƐŝŽŶƐ ĂƉƉůLJ ƚŽ Ă ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ͘ &Žƌ ĚĞƚĂŝůĞĚ
ŝŶĨŽƌŵĂƟŽŶ ĂŶĚ ƐƉĞĐŝĮĐŝƟĞƐ ŽĨ ĞĂĐŚ ƌƟĐůĞ͕ ƉůĞĂƐĞ ƐĞĞ ƚŚĞ D>/ ŇŽǁĐŚĂƌƚƐ͘
ZĞƐĞƌǀĂƟŽŶƐ͗ F YES: The MLI provision for DŽƌĞ ŝŶĨŽƌŵĂƟŽŶ͗
ŽĞƐ ĞŝƚŚĞƌ ŽŶƚƌĂĐƚŝŶŐ :ƵƌŝƐĚŝĐƚŝŽŶ ƚŽ ƚŚĞ which the reservation ĂĐŚ D>/ ƉƌŽǀŝƐŝŽŶ ĂŶĚ ŝƚƐ
ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ ŵĂŬĞ Ă ƌĞƐĞƌǀĂƟŽŶ ŽŶ is made does not džƉůĂŶĂƚŽƌLJ ^ƚĂƚĞŵĞŶƚ
ƚŚĞ ĂƉƉůŝĐĂƟŽŶ ŽĨ Ă ƉƌŽǀŝƐŝŽŶ ŽĨ ƚŚĞ D>/͍ apply and does not
modify the Covered Tax &ůŽǁĐŚĂƌƚ ŽŶ ĞĂĐŚ ƌƟĐůĞ
Agreement.
F NO: The MLI Article could
apply and modify the
Covered Tax Agreement.
EŽƚĞ͗ ĂĐŚ ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ ŝƐ ĂůůŽǁĞĚ ƚŽ ŵĂŬĞ Ă ƌĞƐĞƌǀĂƟŽŶ ƵŶŝůĂƚĞƌĂůůLJ͕ ǁŚŝůĞ ƚŚĞ ĞīĞĐƚ ŽĨ ƌĞƐĞƌǀĂƟŽŶ ĂƉƉůŝĞƐ
ƐLJŵŵĞƚƌŝĐĂůůLJ ;ƐĞĞ ƌƚŝĐůĞ Ϯϴ;ϯͿͿ͘ ĐĐŽƌĚŝŶŐůLJ͕ Ă ƌĞƐĞƌǀĂƚŝŽŶ ŵĂĚĞ ďLJ Ă ŽŶƚƌĂĐƚŝŶŐ :ƵƌŝƐĚŝĐƚŝŽŶ ǁŝƚŚ ƌĞƐƉĞĐƚ ƚŽ Ă
ƉƌŽǀŝƐŝŽŶ ŐĞŶĞƌĂůůLJ ďůŽĐŬƐ ƚŚĞ ĂƉƉůŝĐĂƟŽŶ ŽĨ ƚŚĞ ƉƌŽǀŝƐŝŽŶ͕ ǁŚĞƚŚĞƌ Žƌ ŶŽƚ ƚŚĞ ŽƚŚĞƌ ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ ŚĂƐ ĂůƐŽ
ŵĂĚĞ ƚŚĞ ƌĞƐĞƌǀĂƟŽŶ͘
KƉƟŽŶĂů ƉƌŽǀŝƐŝŽŶƐ͗ F YES: The optional provision DŽƌĞ ŝŶĨŽƌŵĂƟŽŶ͗
chosen could apply and
Ž ďŽƚŚ ŽŶƚƌĂĐƚŝŶŐ :ƵƌŝƐĚŝĐƚŝŽŶƐ ƚŽ ƚŚĞ modify the Covered Tax ĂĐŚ D>/ ƉƌŽǀŝƐŝŽŶ ĂŶĚ ŝƚƐ
ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ ĐŚŽŽƐĞ ƚŽ ĂƉƉůLJ ĂŶ Agreement. džƉůĂŶĂƚŽƌLJ ^ƚĂƚĞŵĞŶƚ
ŽƉƟŽŶĂů ƉƌŽǀŝƐŝŽŶ ŽĨ ƚŚĞ D>/͍
F NO: The optional provision &ůŽǁĐŚĂƌƚ ŽŶ ĞĂĐŚ ƌƟĐůĞ
does not apply.
EŽƚĞ͗ ŽŶƚƌĂƌLJ ƚŽ ƌĞƐĞƌǀĂƟŽŶƐ͕ ďŽƚŚ ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶƐ ĂƌĞ ƌĞƋƵŝƌĞĚ ƚŽ ĐŚŽŽƐĞ ƚŽ ĂƉƉůLJ ƚŚĞ ƐĂŵĞ ŽƉƟŽŶĂů
ƉƌŽǀŝƐŝŽŶ ŝŶ ŽƌĚĞƌ ƚŽ ĂƉƉůLJ ƚŚĞ ƉƌŽǀŝƐŝŽŶ ;ĞdžĐĞƉƚ ĨŽƌ ƌƟĐůĞ ϱ ĂŶĚ Ϯϯ;ϱͿͿ͘
Step ͻ EŽƟĮĐĂƟŽŶƐ ŽĨ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶƐ͗ /ĚĞŶƟĨLJ ǁŚŝĐŚ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶƐ ĂƌĞ ŵŽĚŝĮĞĚ
4
dŽ ĞŶƐƵƌĞ ĐůĂƌŝƚLJ ĂŶĚ ƚƌĂŶƐƉĂƌĞŶĐLJ ĂďŽƵƚ ƚŚĞ ĂƉƉůŝĐĂƟŽŶ͕ ƚŚĞ D>/ ƌĞƋƵŝƌĞƐ WĂƌƟĞƐ ƚŽ ŶŽƟĨLJ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶƐ ƚŽ ďĞ
ŵŽĚŝĮĞĚ ďLJ ƚŚĞ D>/ ƉƌŽǀŝƐŝŽŶ͘ /Ŷ ĂĚĚŝƟŽŶ͕ ĞĂĐŚ ƌƟĐůĞ ĐŽŶƚĂŝŶƐ ƉƌŽǀŝƐŝŽŶƐ ĚĞƐĐƌŝďŝŶŐ ĚĞƚĂŝůƐ ŽŶ ŚŽǁ ƚŚĞ ĂƉƉůŝĐĂďůĞ
D>/ ƉƌŽǀŝƐŝŽŶƐ ŵŽĚŝĨLJ Ă ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ ;ĐŽŵƉĂƚŝďŝůŝƚLJ ĐůĂƵƐĞƐͿ͘ dŚĞ ĞĨĨĞĐƚ ŽĨ ŶŽƚŝĨŝĐĂƚŝŽŶƐ ĚĞƉĞŶĚƐ ŽŶ
ƚŚĞ ƚLJƉĞ ŽĨ ĐŽŵƉĂƟďŝůŝƚLJ ĐůĂƵƐĞ ǁŚŝĐŚ ĐŽƵůĚ ƉƌŽǀŝĚĞ ƚŚĂƚ ƚŚĞ D>/ ƉƌŽǀŝƐŝŽŶ ĂƉƉůŝĞƐ ͞ŝŶ ƉůĂĐĞ ŽĨ ͕͟ ͞ĂƉƉůŝĞƐ ƚŽ͟ Žƌ
͞ŵŽĚŝĮĞƐ͕͟ ͞ŝŶ ƚŚĞ ĂďƐĞŶĐĞ ŽĨ͕͟ Žƌ ͞ŝŶ ƉůĂĐĞ ŽĨ Žƌ ŝŶ ƚŚĞ ĂďƐĞŶĐĞ ŽĨ͟ ;ƐĞĞ ĂůƐŽ ƚŚĞ džƉůĂŶĂƚŽƌLJ ^ƚĂƚĞŵĞŶƚ͕ ƉĂƌĂ͘ ϭϱͲϭϴͿ͘
The MLI dŚĞ D>/ ƉƌŽǀŝƐŝŽŶ dŚĞ D>/ ƉƌŽǀŝƐŝŽŶ dŚĞ D>/ ƉƌŽǀŝƐŝŽŶ
ƉƌŽǀŝƐŝŽŶ ĂƉƉůŝĞƐ ͞ĂƉƉůŝĞƐ ƚŽ͟ Žƌ ĂƉƉůŝĞƐ ͞ŝŶ ƚŚĞ ͞ŝŶ ƉůĂĐĞ ŽĨ Žƌ ŝŶ
͞ŝŶ ƉůĂĐĞ ŽĨ͟ ĂŶ ͞ŵŽĚŝĮĞƐ͟ ĂŶ ĂďƐĞŶĐĞ ŽĨ͟ ĂŶ ƚŚĞ ĂďƐĞŶĐĞ ŽĨ͟ ĂŶ
ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ
ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ
tŚĞƌĞ ďŽƚŚ In the tŚĞƌĞ ďŽƚŚ In the tŚĞƌĞ ďŽƚŚ In the tŚĞƌĞ ďŽƚŚ In the tŚĞƌĞ
ŽŶƚƌĂĐƟŶŐ ĐĂƐĞ ŽĨ Ă ŽŶƚƌĂĐƟŶŐ ĐĂƐĞ ŽĨ Ă ŽŶƚƌĂĐƟŶŐ ĐĂƐĞ ŽĨ Ă ŽŶƚƌĂĐƟŶŐ ĐĂƐĞ ŽĨ Ă ŶĞŝƚŚĞƌ
:ƵƌŝƐĚŝĐƟŽŶƐ ŶŽƟĮĐĂƟŽŶ :ƵƌŝƐĚŝĐƟŽŶƐ ŶŽƟĮĐĂƟŽŶ :ƵƌŝƐĚŝĐƟŽŶƐ ŶŽƟĮĐĂƟŽŶ :ƵƌŝƐĚŝĐƟŽŶƐ ŶŽƟĮĐĂƟŽŶ ŽŶƚƌĂĐƟŶŐ
mismatch* mismatch* mismatch* ŚĂǀĞ ŶŽƟĮĞĚ mismatch* :ƵƌŝƐĚŝĐƟŽŶ
have have have the same ŚĂƐ ŶŽƟĮĞĚ
ŶŽƟĮĞĚ ŶŽƟĮĞĚ ŶŽƟĮĞĚ ƚŚĞ ĂŶ ĞdžŝƐƟŶŐ
the same the same ĂďƐĞŶĐĞ ŽĨ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ
ĞdžŝƐƟŶŐ ĞdžŝƐƟŶŐ ĂŶ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ
ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶ
ƉƌŽǀŝƐŝŽŶ
dŚĞ ĞdžŝƐƟŶŐ The MLI The MLI The MLI The MLI The MLI dŚĞ ĞdžŝƐƟŶŐ The MLI The MLI
ƉƌŽǀŝƐŝŽŶƐ ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶƐ ƉƌŽǀŝƐŝŽŶ ƉƌŽǀŝƐŝŽŶ
does not changes the does not is added does not ĂƌĞ ƌĞƉůĂĐĞĚ applies and applies and
ĂƌĞ ĂƉƉůŝĐĂƟŽŶ by the MLI ƐƵƉĞƌƐĞĚĞƐ ƐƵƉĞƌƐĞĚĞƐ
ƌĞƉůĂĐĞĚ apply apply apply ƉƌŽǀŝƐŝŽŶ ƚŚĞ ĞdžŝƐƟŶŐ ƚŚĞ ĞdžŝƐƟŶŐ
by the MLI ŽĨ ƚŚĞ ƉƌŽǀŝƐŝŽŶƐ ƉƌŽǀŝƐŝŽŶƐ ƚŽ
ƉƌŽǀŝƐŝŽŶ ĞdžŝƐƟŶŐ ƚŚĞ ĞdžƚĞŶĚ ŽĨ
ƉƌŽǀŝƐŝŽŶ to the ŝŶĐŽŵƉĂƟďŝůŝƚLJ
without ĞdžƚĞŶĚ ŽĨ ;ŝ͘Ğ dŚĞ D>/
ƌĞƉůĂĐŝŶŐ ŝƚ ŝŶĐŽŵƉĂƟͲ ƉƌŽǀŝƐŝŽŶ ŝƐ
added)
bility
1103
MLI (including Overview of BEPS) – A Compendium
Ύ EŽƟĮĐĂƟŽŶ ŵŝƐŵĂƚĐŚĞƐ ĂƌĞ ĐĂƐĞƐ ǁŚĞƌĞ ŽŶĞ ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ ŚĂƐ ŶŽƟĮĞĚ ĂŶ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶ ďƵƚ ƚŚĞ ŽƚŚĞƌ ŚĂƐ
ŶŽƚ͕ Žƌ ǁŚĞƌĞ ƚŚĞ ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶƐ ŚĂǀĞ ŵĂĚĞ Ă ĚŝīĞƌĞŶƚ ŶŽƟĮĐĂƟŽŶ ǁŝƚŚ ƌĞƐƉĞĐƚ ƚŽ ĞdžŝƐƟŶŐ ƉƌŽǀŝƐŝŽŶƐ ŝŶ ƚŚĞŝƌ D>/
ƉŽƐŝƟŽŶƐ ;ĞdžĐĞƉƚ ĨŽƌ ŵŝŶŽƌ ĚŝīĞƌĞŶĐĞƐͿ͘
Step ͻ ŶƚƌLJ ŝŶƚŽ ĞīĞĐƚ ŽĨ ƚŚĞ D>/͗ sĞƌŝĨLJ ŝĨ ƚŚĞ D>/ ƉƌŽǀŝƐŝŽŶƐ ŚĂǀĞ ĞīĞĐƚ
5
dŚĞ D>/ ƉƌŽǀŝƐŝŽŶƐ ǁŝůů ŐĞŶĞƌĂůůLJ ŚĂǀĞ ĞīĞĐƚ ŝŶ ƚŚĞ ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶƐ ǁŝƚŚ ƌĞƐƉĞĐƚ ƚŽ Ă ŽǀĞƌĞĚ dĂdž ŐƌĞĞŵĞŶƚ
Ăƚ ĚŝĨĨĞƌĞŶƚ ŵŽŵĞŶƚ ǁŝƚŚ ƌĞƐƉĞĐƚ ƚŽ ƚĂdžĞƐ ǁŝƚŚŚĞůĚ Ăƚ ƐŽƵƌĐĞ ĂŶĚ ǁŝƚŚ ƌĞƐƉĞĐƚ ƚŽ Ăůů ŽƚŚĞƌ ƚĂdžĞƐ ůĞǀŝĞĚ ďLJ Ă
ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ͘
tŝƚŚ ƌĞƐƉĞĐƚ ƚŽ ƚĂdžĞƐ ǁŝƚŚŚĞůĚ Ăƚ ƐŽƵƌĐĞ͗ DŽƌĞ ŝŶĨŽƌŵĂƟŽŶ͗
Ɛ ŽĨ ƚŚĞ ůĂƚĞƐƚ ĚĂƚĞ ŽŶ Go to the 1st D>/ ƉƌŽǀŝƐŝŽŶƐ ƌƟĐůĞƐ ϯϱ ĂŶĚ ϯϲ
ǁŚŝĐŚ ƚŚĞ D>/ ĞŶƚĞƌƐ ĚĂLJ ŽĨ ƚŚĞ ŶĞdžƚ ŚĂǀĞ ĞīĞĐƚ džƉůĂŶĂƚŽƌLJ ^ƚĂƚĞŵĞŶƚ͕
ŝŶƚŽ ĨŽƌĐĞ ĨŽƌ ĞĂĐŚ ŽĨ ƚŚĞ ĐĂůĞŶĚĂƌ LJĞĂƌ
ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶƐ ƉĂƌĂ͘ ϯϮϰͲϯϱϬ
tŝƚŚ ƌĞƐƉĞĐƚ ƚŽ Ăůů ŽƚŚĞƌ ƚĂdžĞƐ ůĞǀŝĞĚ ďLJ Ă ŽŶƚƌĂĐƟŶŐ :ƵƌŝƐĚŝĐƟŽŶ͗
Ɛ ŽĨ ƚŚĞ ůĂƚĞƐƚ ĚĂƚĞ ŽŶ džƉŝƌĂƟŽŶ ŽĨ D>/ ƉƌŽǀŝƐŝŽŶƐ ŚĂǀĞ
ǁŚŝĐŚ ƚŚĞ D>/ ĞŶƚĞƌƐ Ă ƉĞƌŝŽĚ ŽĨ ĞīĞĐƚ ĨŽƌ ƚĂdžĞƐ
ŝŶƚŽ ĨŽƌĐĞ ĨŽƌ ĞĂĐŚ 6 months
ŽĨ ƚŚĞ ŽŶƚƌĂĐƚŝŶŐ ůĞǀŝĞĚ ǁŝƚŚ ƌĞƐƉĞĐƚ
:ƵƌŝƐĚŝĐƟŽŶƐ
ƚŽ ƚĂdžĂďůĞ ƉĞƌŝŽĚƐ
ďĞŐŝŶŶŝŶŐ ĂƐ ŽĨ ƚŚĂƚ
moment
EŽƚĞ͗ dŚĞ D>/ ƉƌŽǀŝĚĞƐ ĞdžĐĞƉƟŽŶƐ ƚŽ ƚŚĞ ĂďŽǀĞ ŐĞŶĞƌĂů ƌƵůĞƐ ŽĨ ĞŶƚƌLJ ŝŶƚŽ ĞīĞĐƚ͘ WůĞĂƐĞ ƐĞĞ ƌƟĐůĞƐ ϯϱ ĂŶĚ ϯϲ ĂƐ ǁĞůů
ĂƐ ƚŚĞ D>/ ƉŽƐŝƟŽŶƐ͘
dŚŝƐ ^ƚĞƉͲďLJͲƐƚĞƉ ŽǀĞƌǀŝĞǁ ŚĂƐ ďĞĞŶ ƉƌĞƉĂƌĞĚ ďLJ ƚŚĞ K ^ĞĐƌĞƚĂƌŝĂƚ ĂƐ ƉĂƌƚ ŽĨ ƚŚĞ D>/ ƉƉůŝĐĂƟŽŶ ƚŽŽůŬŝƚ͘ &Žƌ ŵŽƌĞ
ŝŶĨŽƌŵĂƟŽŶ ƐĞĞ ŽĞ͘ĐĚͬŵůŝ͘
1104
Ann 5 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
5 Multilateral Convention to Implement Tax
Treaty Related Measures to Prevent Base
ANNEXURE Erosion and Profit Shifting : Functioning
under Public International Law
Note by the OECD Directorate for Legal Affairs
1. The present note sets out the background to and legal concepts
behind the development of the Multilateral Convention to Implement
Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting
(hereafter “MLI”), in order to explain the way in which it operates under
public international law to modify existing bilateral tax treaties. It should
be read in conjunction with the Explanatory Statement to the MLI, which
was adopted at the same time as the text of the Convention itself on
24 November 2016 and which reflects the agreed understanding of the
negotiators with respect to the Convention1.
A. BEPS and the Need to Update Bilateral Tax Treaties
2. Base erosion and profit shifting (BEPS) refers to tax avoidance
strategies that exploit gaps and mismatches in tax rules to artificially shift
profits to low or no-tax locations where there is little or no economic
activity, resulting in little or no overall corporate tax being paid. The 2013
OECD/G20 BEPS Action Plan identified 15 Actions to address BEPS in a
comprehensive manner2.
1. MLI Explanatory Statement, paragraph 11: https://www.oecd.org/tax/treaties/
explanatory-statement-multilateral-convention-to-implement-tax-treaty-related-
measures-to-prevent-BEPS.pdf.
2. Action Plan on BEPS: https://www.oecd.org/ctp/BEPSActionPlan.pdf endorsed
by G20 Leaders at their September 2013 Summit in St Petersburg: http://www.
g20.utoronto.ca/2013/2013-0906-declaration.html.
1105
MLI (including Overview of BEPS) – A Compendium
3. After two years of work among all OECD and G20 members, the
BEPS Package was endorsed by the OECD and G20 in November 20153.
Since then, many other jurisdictions have joined OECD and G20 countries
in committing to the BEPS Package and its consistent implementation by
becoming members of the Inclusive Framework on BEPS Implementation4.
4. The Package includes measures under four Actions which involve
changes to the existing network of more than 3000 bilateral tax treaties
(Action 2 on Hybrid Mismatches; Action 6 on the Prevention of Treaty
Abuse; Action 7 on Avoidance of Permanent Establishment Status; Action 14
on Improving Dispute Resolution)5. Certain of the tax treaty-related measures
- under Action 6 and Action 14-represent minimum standards, meaning
that countries have agreed that these standards must be implemented.
For jurisdictions which are members of the Inclusive Framework on BEPS
Implementation6, the implementation of the minimum standards will be
monitored by means of a peer review mechanism.
B. Agreement to Develop a Multilateral Treaty to
Update Bilateral Tax Treaties
5. Action 15 of the 2013 OECD/G20 BEPS Action Plan mandated
an analysis of the possible development of a multilateral instrument to
implement tax treaty related BEPS measures “to enable jurisdictions that
wish to do so to implement measures developed in the course of the work
on BEPS and amend bilateral tax treaties”. Following the launch of the
Action Plan, a “Group of Experts” was set upto examine the feasibility of
using a multilateral instrument for this purpose. The Group was composed
of eminent experts in public international law, including several members
of the United Nations International Law Commission, as well as eminent
experts in international tax law7.
3. Final BEPS package: http://www.oecd.org/tax/beps-2015-final-reports.htm
4. Inclusive framework: http://www.oecd.org/tax/beps/beps-about.htm, and
its members: http://www.oecd.org/tax/beps/inclusive-framework-on-beps-
composition.pdf
5. See note 3
6 See About BEPS and the inclusive framework - OECD
7. The Group of Experts included: Philip Baker (United Kingdom), Théodore
Christakis (Greece), Frank Engelen (Netherlands), Concepción Escobar
Hernandez (Spain), Mathias Forteau (France), Itai Grinberg (United States),
Jan Klabbers (Netherlands), Vaughan Lowe (United Kingdom), Philippe
Martin (France), Yoshihiro Masui (Japan), Ekkehart Reimer (Germany), Giorgio
Sacerdoti (Italy), Dire Tladi (South Africa).
1106
Ann 5 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
6. Based on the work of the Group of Experts in 2013-2014, the 2014
Report on Action 158 concluded that a multilateral instrument can:
a) implement BEPS measures and modify the existing network of
bilateral tax treaties;
b) provide appropriate flexibility in the level of commitment; and
c) ensure transparency and clarity for all stakeholders9.
7. Based on an analysis of doctrine and precedents in public
international law, the Annex to the 2014 Report presented a toolbox of
options to be used, as appropriate, in the development of a multilateral
instrument to implement the BEPS tax treaty-related measures.
In light of these elements, the 2014 Report concluded that a multilateral
instrument to enable countries to modify their tax treaties to implement
BEPS tax treaty-related measures was “desirable and feasible, and the
negotiations should be convened quickly”10.
C. Development of the MLI by an International Conference
8. The 2014 Interim Report on Action 15 recommended that an
international conference be convened to negotiate a multilateral instrument
to implement tax treaty-related BEPS measures11. Accordingly, the “Mandate
for the Development of a Multilateral Instrument on Tax Treaty Measures to
Tackle BEPS”, which provided for the establishment of an ad hoc Group for
this purpose, was approved by the countries participating in the OECD/G20
BEPS Project and endorsed by the G20 Finance Ministers and Central Bank
Governors in February 201512. The Action 15 Final Report, which forms
part of the BEPS Package endorsed by the OECD Council and G20 Leaders,
reflected these developments13.
8. See Action 15 Final Report, pp. 13-54: http://www.keepeek.com/Digital-Asset-
Management/oecd/taxation/developing-a-multilateral-instrument-to-modify-
bilateral-tax-treaties-action-15-2015-final-report_9789264241688-en#page1
9. Ibid, Annex
10. Ibid, p. 17
11. Ibid, p. 27
12. CTPA/CFA/NOE2(2015)12/REV3/CONF and G20 endorsement: http://www.g20.
utoronto.ca/2015/150210-finance.pdf
13. See note 8 and endorsement by OECD Council on 1 October 2015
[C/M(2015)19, item 190 and C(2015)125] and G20 Leaders: http://www.g20.
utoronto.ca/2015/151116-communique.html.
1107
MLI (including Overview of BEPS) – A Compendium
9. The ad hoc Group, which continues its work, is open to participation
from all interested countries on an equal footing and is served by the
OECD Secretariat. Over 100 countries and jurisdictions participated in the
negotiation of the MLI14. There were six negotiation sessions, starting in May
2015 and the text of the Convention was adopted by the ad hoc Group on
24 November 2016.
10. Since the substance of the tax treaty related BEPS measures had
already been agreed, the role of the ad hoc Group that negotiated the MLI
was to determine the way in which the MLI would modify the provisions
of bilateral tax treaties in order to implement those measures. The one
exception was Part VI of the MLI which contains a set of provisions on
mandatory binding mutual agreement procedure (MAP) arbitration. The
substance of these provisions was developed as part of the negotiation of
the MLI by a Sub-Group on Arbitration.
D. Concept of the MLI: One Negotiation,
One Signature, One Ratification
11. The MLI is a multilateral treaty which will be applied alongside
existing bilateral tax treaties modifying their application. In this way,
bilateral treaties can be modified in a synchronised and consistent way in
order to swiftly implement the tax treaty-related BEPS measures.
12. The MLI represents a significant efficiency gain as compared to the
alternative of pairs of jurisdictions bilaterally renegotiating each of the more
than 3,000 tax treaties, which could have taken decades and resulted in
inconsistent implementation on BEPS measures. Instead of many different
negotiations, there has been one collective negotiation. The MLI also enables
countries to go through only one ratification procedure in their parliament
in order to modify their whole treaty network rather than seeking separate
ratification of amendments to each bilateral tax treaty.
13. While the MLI will constitute the first use of a multilateral treaty to
modify bilateral tax treaties, this mechanism has already been used in other
areas. For example, a 2003 Agreement on Extradition between the European
Union and the United States modified the provisions of existing bilateral
14. Members of the ad hoc Group: http://www.oecd.org/tax/treaties/multilateral-
instrument-for-beps-tax-treaty-measures-the-ad-hoc-group.htm
1108
Ann 5 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
extradition treaties between the different European Union Member States
and the United States15.
E. “Modification” of Bilateral Tax Treaties by a
Subsequent Multilateral Treaty
14. As set out in Articles 1 and 2 of the MLI, the Convention “modifies”
any tax treaty in force between Parties to the MLI which has been listed
by both Contracting Jurisdictions as an agreement which they wish to be
covered by the MLI (defined as a “Covered Tax Agreement”).
15. The term “modification” was deliberately chosen, having been the
subject of an in-depth discussion with the Group of Experts. As set out in
the Explanatory Statement to the MLI16, the Convention does not function
in the same way as an amending protocol to a single existing tax treaty
which would set out amendments to the text of specified provisions of the
tax treaty. Instead, the MLI is applied alongside existing bilateral tax treaties,
modifying their application in order to implement the tax treaty-related
BEPS measures.
16. The approach taken in the MLI follows the general legal principle
that when two rules apply to the same subject matter, the later in time
prevails (lex posterior derogatlegipriori). Accordingly, to the extent that
they are incompatible, a subsequent treaty (i.e., the MLI) prevails over a
previously concluded treaty between the same Parties on the same subject
15. 2003 Agreement on Extradition between the European Union and the
United States of America: http://ec.europa.eu/world/agreements/downloadFile.
do?fullText=yes&treatyTransId=10121, see also Developing a Multilateral
Instrument to Modify Bilateral Tax Treaties, Action 15 - 2015 Final Report
p.35: http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/
developing-a-multilateral-instrument-to-modify-bilateral-tax-treaties-action-
15-2015-final-report_9789264241688-en#page1. Other examples, cited in the
Annex to the 2014 Report (pp. 32-34), include the European Convention on
Extradition (1957), European Convention on the Repatriation of Minors (1970),
the Convention for the Suppression of Unlawful Acts against the Safety of
Maritime Navigation (1988), the North American Free Trade Agreement (1994)
and the International Convention for the Suppression of the Financing of
Terrorism (1999).
16. See note 1, paragraph 13.
1109
MLI (including Overview of BEPS) – A Compendium
matter (i.e., a Covered Tax Agreement). This rule is explicitly set out in
Article 30(3) of the 1969 Vienna Convention on the Law of Treaties and is
also considered to reflect customary international law17. In cases in which
two successive treaties are concluded on the same subject matter, the
Parties are considered as having consented to modify their prior rights and
obligations under the earlier treaty through the expression of their sovereign
will to be bound by the later treaty.
17. It is important to note that the MLI does not somehow “freeze” the
underlying bilateral treaty in time. In this regard, Article 30 of the MLI
explicitly provides that its provisions “are without prejudice to subsequent
modifications to a Covered Tax Agreement which may be agreed between
the Contracting Jurisdictions of the Covered Tax Agreement”.18
18. To express this in another way, the broad object and purpose
of a bilateral tax treaty or “double tax convention” is to agree on the
allocation of taxing rights and other forms of tax cooperation between two
jurisdictions (including to prevent tax evasion and avoidance). Accordingly,
two jurisdictions have mutually consented to a defined set of rights and
obligations on this set of issues (in the form of a bilateral tax treaty). The
terms of this mutual consent between the two jurisdictions may already
have been modified (e.g., in the form of an amending protocol to the
bilateral treaty). The mutual consent between the two jurisdictions will now
be modified in the context of wider multilateral consensus on these issues
(in the form of the MLI). The mutual consent between the two jurisdictions
on these issues can continue to be modified in the future19 (for example, in
the form of an amending protocol to the bilateral tax treaty, a subsequent
multilateral treaty or by the termination of the bilateral treaty). Accordingly,
the key concept is the evolution of the mutual consent between the two
jurisdictions which may be expressed in different legal forms.
17. 1969 Vienna Convention on the Law of Treaties: https://treaties.un.org/doc/
publication/unts/volume%201155/volume-1155-i-18232-english.pdf
18 It is important to recall here that the extent to which a member jurisdiction of
the Inclusive Framework on BEPS Implementation (see note 6) has fulfilled its
commitment to implement the BEPS minimum standards will be monitored
by means of a peer review mechanism.
19 See note 18.
1110
Ann 5 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
F. Definition of Modifications through Compatibility Clauses,
Reservations and Notifications
19. The MLI modifies the application of Covered Tax Agreements
in different ways. The method of modification is defined by means of a
compatibility clause which defines the relationship between the provisions
of the MLI and the bilateral treaty in objective terms. The different kinds of
modification as described in MLI compatibility clauses are as follows:
a) The MLI provision applies “in place” of an existing provision in a
bilateral treaty i.e., the MLI provision replaces an existing provision
if there is one.
b) The MLI provision “applies to” or “modifies” an existing provision
in a bilateral treaty i.e. the MLI provision changes the application
of an existing provision without entirely replacing it.
c) The MLI provision applies “in the absence of” an existing provision
in a bilateral treaty i.e., the MLI provision is, in effect, added to the
bilateral treaty if there is no existing provision.
d) The MLI provision applies “in place of or in the absence of ” an
existing provision in a bilateral treaty i.e., the MLI provision either
replaces an existing provision or is, in effect, added to the bilateral
treaty if there is no existing provision.
20. In all of the cases set out above, the existing agreement between the
Contracting Jurisdictions, as set out in the bilateral tax treaty, is modified
by the MLI. Accordingly, there is no difference in the legal functioning of
the MLI provisions described in cases a) to d).
21. To accommodate different existing provisions in bilateral tax treaties
and different policy preferences, the MLI allows for different forms of
flexibility through a system of reservations20 and notifications of choices
between alternative provisions and choices to apply optional provisions. A
jurisdiction’s list of Covered Tax Agreements, reservations and notifications
is submitted in the form of a completed template and constitutes the
jurisdiction’s “MLI Position”.
20 An exhaustive list of authorised reservations to the MLI is set out in its
Article 28(1). The only exception, as set out in Article 28(2), are reservations
with regard to the scope of cases eligible for arbitration under Part VI of the
MLI which can be formulated by a Party choosing to apply Part VI. See also
paragraphs 264-270 of the Explanatory Statement to the MLI.
1111
MLI (including Overview of BEPS) – A Compendium
22. In order to ensure that there is clarity and transparency about the
modifications made by the MLI to bilateral treaties, the operation of the
compatibility clauses described above is linked to notifications provided
by the Contracting Jurisdictions to the bilateral treaty21. In cases a), b)
and c) described above, the operation of the MLI provision requires the
notification by both Contracting Jurisdictions to the bilateral treaty of the
existence (cases a and b) or the absence (case c) of an existing provision.
In case d), the MLI provision will apply in all cases regardless of whether
there is an existing provision and regardless of the notifications made by
the Contracting Jurisdictions. If both Contracting Jurisdictions notify the
existence of a provision, the MLI provision will replace it. If the Contracting
Jurisdictions do not notify the existence of a provision, the MLI provision
will be added to the bilateral treaty. In the unlikely event that, in case
d), there were to be an existing provision which has not been notified by
both Contracting Jurisdictions, the MLI provision would supersede the
existing provision to the extent that the two are incompatible. This again
represents an application of the principle, reflected in Article 30(3) of the
Vienna Convention on the Law of Treaties22, under which an earlier treaty
between the same parties will apply only to the extent that its provisions
are compatible with those of the later treaty.
G. Ratification and Domestic Implementation
23. Ratification is an international act whereby a State establishes on
the international plane23 its consent to be bound by a treaty24. In order to
proceed to ratification of the treaty, many countries will complete domestic
processes in order to secure Parliamentary approval for ratification25. In
this way, the consent to the terms of a treaty by the executive branch of
government (expressed by the signature of the treaty) is confirmed by the
21. As set out in paragraph 15 of the Explanatory Statement to the MLI, “[i]t is
expected that Parties would use their best efforts to identify all provisions [of
the bilateral treaty] that are within the objective scope of the compatibility
clause. It is not intended that Parties would choose to omit some relevant
provisions while listing others.”
22. See note 17
23 meaning at the international “level”
24. Article 2(1)(b) of the 1969 Vienna Convention on the Law of Treaties, see note
16
25 Some jurisdictions may not require parliamentary approval or have any formal
process to accomplish before depositing their instrument of ratification of the
MLI.
1112
Ann 5 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
legislative branch of government. Once any ratification procedures are
complete, ending with the deposit of the instrument of ratification, the State
has consented to be bound by the terms of the treaty.
24. The process for ratification will vary depending on the jurisdiction’s
legal system and domestic requirements. For most jurisdictions, it will be
necessary to seek Parliamentary approval for the ratification of the MLI. It
is expected that, for the purpose of ratification of the MLI, the Parliament
will only review the MLI itself and the jurisdiction’s own MLI Position (i.e.
the list of Covered Tax Agreements, reservations and notifications). Indeed,
this is the standard approach for multilateral treaties which remain open for
signature in the future, since a government does not know at the time of
ratification which other jurisdictions will become parties to the treaty and
what position they will take under the treaty. It is also part of the inherent
design of the MLI: there is an “open offer” by a jurisdiction to its listed
treaty partners to modify bilateral tax treaties in line with its MLI Position.
25. It is important to note that, irrespective of the MLI Position taken
by its treaty partners, the modifications to the application of a jurisdiction’s
bilateral tax treaties can never go beyond the boundaries of the jurisdiction’s
own consent as defined in its MLI Position and with the consequences set
out in the relevant provisions of the MLI. For instance, the application of
a bilateral treaty concluded by the jurisdiction will not be modified unless
it has been listed by that jurisdiction as a Covered Tax Agreement and an
MLI provision will not modify the application of any of that jurisdiction’s
bilateral treaties if the jurisdiction has made a reservation opting out entirely
of an MLI provision26. Accordingly, in ratifying the MLI, the jurisdiction
consents to a possible set of modifications to the application of bilateral tax
treaties and this consent is given independently of the MLI Positions which
may be taken by its treaty partners. Nevertheless, jurisdictions may decide to
present to parliament for information the MLI Position taken by their treaty
partners which sign at the same time in order to facilitate an understanding
of how those bilateral tax treaties are likely to be modified.
26 Article 28(3) of the MLI restates the principle reflected in Article 21(1) of the
Vienna Convention on the Law of Treaties that, unless explicitly provided
otherwise, a reservation made by one Party applies symmetrically and
modifies the MLI provision to the same extent for both the reserving Party
and the other Party.
1113
MLI (including Overview of BEPS) – A Compendium
26. In considering the question of what legal steps are required in order
to give effect to the MLI, it is important to distinguish the situation in public
international law and in domestic law.
a) What is the situation in public international law?
27. In terms of public international law, the ratification of the MLI by
both Contracting Jurisdictions to the bilateral treaty is all that is needed in
public international law for the MLI to modify a Covered Tax Agreement.
When the MLI has modified a tax treaty, the applicable rule in public
international law terms would thus be “Article X of the bilateral tax treaty
as modified by Article Y of the MLI”.
This answer in public international law is the same for all treaty partners
irrespective of their domestic legal system.
b) What is the situation in domestic law?
28. In terms of domestic law, jurisdictions will have different methods
for ensuring the implementation at the domestic level of the modifications
made by the MLI to bilateral tax treaties. The method will depend on the
legal framework which governs the implementation of international rights
and obligations in each jurisdiction, e.g. whether the ratification of an
international treaty automatically results in the integration of the rights and
obligations set out in that treaty into domestic law (a “monist” system) or
whether domestic legislation is required in order to transpose the rights and
obligations in the treaty in to domestic law (a “dualist” system). In the first
case, changes to the rights and obligations of taxpayers may flow directly
from the ratification of the MLI while, in the second case, such changes to
the rights and obligations of taxpayers will generally flow from domestic
legislation.
29. The approach to the domestic implementation of the MLI will
generally follow the way in which bilateral tax treaties themselves are
implemented at the domestic level. In some jurisdictions, the reference to
the applicable rule in domestic law will be directly to the bilateral treaty
(typically in monist systems) while in other jurisdictions, the reference to
the applicable rule in domestic law will be to domestic legislation which
transposes the bilateral treaty (typically in dualist systems). Accordingly,
when the MLI has modified a tax treaty, the reference to the applicable rule
in domestic law may either be to the bilateral treaty itself as modified by
the MLI (the same answer as in public international law terms) or it may
be to domestic legislation which transposes the modifications made by the
MLI to the bilateral treaty (hence a different answer in public international
law terms and domestic law terms).
1114
Ann 5 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
30. In the case in which there is domestic transposing legislation, that
legislation can take different forms. In many cases, the legislation may
reproduce the relevant provisions of the MLI in order to give them effect
under domestic law. However, in a few cases, the domestic transposing
legislation may “consolidate” into one single statute or set of statutory rules
the provisions of the bilateral tax treaty with the modifications made by the
MLI and, in order to prepare this domestic legislation, the jurisdiction may
wish to consult with its treaty partner in order to ensure it has a correct
understanding of how their “mutual consent” concerning the allocation of
taxing rights (see section 5 above) has changed. However, this would not be
an amended text of the bilateral treaty (which would be a legal instrument
at the international level requiring ratification by both treaty partners) but
rather a method for giving effect in domestic law to the specific changes in
the “mutual consent” between the treaty partners.
31. It is important to note that, while the answer to question a) above
is the same for all jurisdictions, the answer to question b) may well be
different for each Contracting Jurisdiction to a bilateral tax treaty. In line
with well-established treaty law and practice, it is not necessary for two
treaty partners to adopt the same approach to the domestic implementation
of a treaty, and the approach adopted will depend on their domestic legal
system. Accordingly, it is not necessary for pairs of Contracting Jurisdictions
to agree on a common approach for domestic implementation of the
modifications made by the MLI to their tax treaty.
H. Legal Requirements v. Methods to Ensure Clarity and Transparency
32. As explained above, a few jurisdictions in the group which have a
generally dualist system may “consolidate” the provisions of the MLI and
the provisions of the bilateral tax treaty in to one text for the purpose of
transposing the modifications made by the MLI into their domestic law.
However, it is important to distinguish what is legally required for the
domestic implementation of the MLI and actions which may be appropriate
for policy reasons, particularly in order to ensure clarity and transparency
for tax administrations and taxpayers about the modifications made by the
MLI to the bilateral tax treaty.
33. Only a few jurisdictions are likely to be under a strict domestic legal
requirement to consolidate the provisions of the MLI and the provisions of
the bilateral tax treaty for the purpose of legislation to transpose the MLI at
the domestic level. However, other jurisdictions may well decide to produce
consolidated versions of their bilateral tax treaties as modified by the MLI
in order to ensure that tax administrations and taxpayers understand the
ways in which the MLI has modified rights and obligations under the
1115
MLI (including Overview of BEPS) – A Compendium
bilateral tax treaty. Such consolidated texts may also be produced by third
parties, in particular, tax treaty database providers. Formally speaking, these
consolidated texts will not be the applicable legal instruments between the
treaty partners at the international level (which would remain the bilateral
treaty and the MLI).27 Rather such texts would constitute practical tools to
facilitate the understanding of the rights and obligations which now apply
under the bilateral treaty as modified by the MLI. For this same purpose,
jurisdictions may also decide not to produce consolidated texts per se but
rather to produce guidance about the modifications made by the MLI.
34. In cases where consolidated texts or guidance are produced not
as a domestic legal requirement but rather as a means of ensuring that
tax administrations and taxpayers understand the applicable rights and
obligations, there is no legal requirement as to the timing of issuance
of such consolidated texts or guidance documents. Accordingly, the
consolidated versions or guidance documents can be issued after ratification
of the MLI, in particular since there is an in-built time delay before the
entry into effect of the provisions of the MLI.28 Moreover, in order to
produce a consolidated version, it will be necessary to have the final version
of both jurisdictions’ MLI Positions which will only be available once both
jurisdictions have ratified the MLI.
For further information on the Multilateral Instrument, please visit oe.cd/mli
27 In certain circumstances, the consolidated texts could be considered as
agreements between competent authorities under the procedure foreseen
in bilateral tax treaties for resolution by mutual agreement of questions of
interpretation or application of the tax treaty.
28. Pursuant to Articles 34 and 35 of the MLI, the MLI enters into force after
the expiry of a specified period following the deposit of the instrument of
ratification and there is a further time delay before the entry into effect of
the specific provisions of the MLI.
1116
Ann 6 — SIGNATORIES AND PARTIES TO THE MULTILATERAL CONVENTION . . .
6 Signatories and parties to the multilateral
convention to implement tax treaty related
ANNEXURE measures to prevent Base Erosion and Profit
Shifting
Status as of 14 February 2020
This document contains a list of signatories and parties to the Multilateral
Convention to Implement Tax Treaty Related Measures to Prevent Base
Erosion and Profit Shifting. Under the provisions of the Convention, each
jurisdiction is required to provide a list of reservations and notifications (the
“MLI Position”) at the time of signature.
The MLI Positions provided for each jurisdiction upon the deposit of
the instrument of ratification, acceptance or approval and /or signature,
the notifications made pursuant to Article 35(7)(b) of the MLI and the
notifications made after becoming a Party to the Convention are available
via the links below.
Important : The current position for each jurisdiction will be the later of
the positions provided upon the deposit of its instrument of ratification,
acceptance or approval of the Convention or made after becoming a Party
to the Convention.
No. Jurisdiction Signature Deposit of Entry into Notifications Notifications
Instrument Force made made after
1 Albania 28-05-2019 becoming a
2 Andorra 07-06-2017 of pursuant to
3 Argentina 07-06-2017 Ratification, Article 35(7) Party
4 Armenia 07-06-2017 Acceptance
5 Australia 07-06-2017 or Approval (b) of the
6 Austria 07-06-2017 MLI
26-09-2018 01-01-2019
22-09-2017 01-07-2018
1117
MLI (including Overview of BEPS) – A Compendium
No. Jurisdiction Signature Deposit of Entry into Notifications Notifications
Instrument Force made made after
becoming a
of pursuant to
Ratification, Article 35(7) Party
Acceptance
or Approval (b) of the
MLI
7 Barbados 24-01-2018
8 Belgium 07-06-2017 26-06-2019 01-10-2019
9 Belize 11-01-2019
10 Bosnia and 30-10-2019
Herzegovina
11 Bulgaria 07-06-2017
12 Burkina Faso 07-06-2017
13 Cameroon 11-07-2017
14 Canada 07-06-2017 29-08-2019 01-12-2019
15 Chile 07-06-2017
16 China 07-06-2017
(People’s
Republic of)
17 Colombia 07-06-2017
18 Costa Rica 07-06-2017
19 Côte d’Ivoire 24-01-2018
20 Croatia 07-06-2017
21 Curaçao 20-12-20171 29-03-2019 01-07-2019
22 Cyprus 07-06-2017 23-01-2020 01-05-2020
23 Czech 07-06-2017
Republic
24 Denmark 07-06-2017 30-09-2019 01-01-2020
25 Egypt 07-06-2017
26 Estonia 29-06-2018
27 Fiji 07-06-2017
28 Finland 07-06-2017 25-02-2019 01-06-2019
1. On this date, the Kingdom of Netherlands communicated a provisional list
of reservations and notifications in respect of Curacao and informed the
OECD that it intended to deposit, at the time of the deposit of its instrument
of acceptance, a definitive list of reservations and notifications pursuant to
Article 28(4) and (5) and Article 29(1) and (2) of the Convention.
1118
Ann 6 — SIGNATORIES AND PARTIES TO THE MULTILATERAL CONVENTION . . .
No. Jurisdiction Signature Deposit of Entry into Notifications Notifications
Instrument Force made made after
becoming a
of 01-01-2019 pursuant to
Ratification, Article 35(7) Party
Acceptance
or Approval (b) of the
MLI
26-09-2018
29 France 07-06-2017
30 Gabon 07-06-2017
31 Georgia 07-06-2017 29-03-2019 01-07-2019
32 Germany 07-06-2017
33 Greece 07-06-2017
34 Guernsey 07-06-2017 12-02-2019 01-06-2019
35 Hong Kong 07-06-2017
(China)
36 Hungary 07-06-2017
37 Iceland 07-06-2017 26-09-2019 01-01-2020
25-06-2019 01-10-2019
38 India 07-06-2017
39 Indonesia 07-06-2017
40 Ireland 07-06-2017 29-01-2019 01-05-2019
25-10-2017 01-07-2018
41 Isle of Man 07-06-2017 13-09-2018 01-01-2019
42 Israel 07-06-2017
43 Italy 07-06-2017
44 Jamaica 24-01-2018
45 Japan 07-06-2017 26-09-2018 01-01-2019 14-02-2020
15-12-2017 01-07-2018
46 Jersey 07-06-2017
47 Jordan 19-12-2019
48 Kazakhstan 25-06-2018
49 Kenya 26-11-2019
50 Korea 07-06-2017
51 Kuwait 07-06-2017
52 Latvia 07-06-2017 29-10-2019 01-02-2020
19-12-2019 01-04-2020
53 Liechtenstein 07-06-2017 11-09-2018 01-01-2019
09-04-2019 01-08-2019
54 Lithuania 07-06-2017
55 Luxembourg 07-06-2017
56 Malaysia 24-01-2018
57 Malta 07-06-2017 18-12-2018 01-04-2019
1119
MLI (including Overview of BEPS) – A Compendium
No. Jurisdiction Signature Deposit of Entry into Notifications Notifications
Instrument Force made made after
becoming a
of pursuant to
Ratification, Article 35(7) Party
Acceptance
or Approval (b) of the
MLI
58 Mauritius 05-07-20172 18-10-2019 01-02-2020
59 Mexico 07-06-2017
60 Monaco 07-06-2017 10-01-2019 01-05-2019
61 Morocco 25-06-2019
62 Netherlands 07-06-2017 29-03-2019 01-07-2019
63 New Zealand 07-06-2017 27-06-2018 01-10-2018
64 Nigeria 17-08-2017
65 North 29-01-2020
Macedonia
66 Norway 07-06-2017 17-07-2019 01-11-2019
67 Oman 26-11-2019
68 Pakistan 07-06-2017
69 Panama 24-01-2018
70 Papua New 23-01-2019
Guinea
71 Peru 27-06-2018
72 Poland 07-06-2017 23-01-2018 01-07-2018
73 Portugal 07-06-2017
74 Qatar 04-12-2018 23-12-2019 01-04-2020
75 Romania 07-06-2017
76 Russian 07-06-2017 18-06-2019 01-10-2019
Federation
77 San Marino 07-06-2017
78 Saudi Arabia 18-09-2018 23-01-2020 01-05-2020
79 Senegal 07-06-2017
80 Serbia 07-06-2017 05-06-2018 01-10-2018
81 Seychelles 07-06-2017
2. Link to the press release issued by Mauritius on 5 July 2017. On 10 October
2018, Mauritius submitted a draft MLI position to the OECD Secretariat in
preparation of Mauritius’ definitive MLI Position to be provided upon the
deposit of its instrument of ratification.
1120
Ann 6 — SIGNATORIES AND PARTIES TO THE MULTILATERAL CONVENTION . . .
No. Jurisdiction Signature Deposit of Entry into Notifications Notifications
Instrument Force made made after
82 Singapore 07-06-2017 becoming a
83 Slovak 07-06-2017 of 01-04-2019 pursuant to
Ratification, 01-01-2019 Article 35(7) Party
Republic Acceptance
84 Slovenia or Approval (b) of the
85 South Africa MLI
86 Spain 21-12-2018
87 Sweden
88 Switzerland 20-09-2018
89 Tunisia
90 Turkey 07-06-2017 22-03-2018 01-07-2018
91 Ukraine 07-06-2017
92 United Arab 07-06-20173 22-06-2018 01-10-2018
07-06-2017 29-08-2019 01-12-2019
Emirates 07-06-2017
93 United 24-01-2018 08-08-2019 01-12-2019
07-06-20174 29-05-2019 01-09-2019
Kingdom 23-07-2018
94 Uruguay 27-06-2018
07-06-2017 29-06-2018 01-10-2018
07-06-2017 06-02-2020 01-06-2020
3. Declaration made by Spain : http:/www.oecd.org/tax/treaties/beps-mli-
declaration-spain.pdf
4. Declaration made by Turkey: http://www.oecd.org/tax/treaties/beps-mli-
declaration-turkey.pdf
1121
MLI (including Overview of BEPS) – A Compendium
7 Frequently Asked Questions on the
Multilateral Instrument (MLI)
ANNEXURE
SYNOPSIS
GENERAL FAQ’s
1. How does the MLI help the fight against base erosion and profit
shifting (BEPS)?............................................................................................ 1124
2. What is the coverage of the MLI? How many treaties will be
modified? ..................................................................................................... 1124
3. Have developing countries been part of the development process of
the MLI?........................................................................................................ 1125
4. How many Signatories choose to implement the Action 6 minimum
standard with the PPT?............................................................................... 1125
5. Why have the Signatories not listed all their existing tax treaties? ..... 1125
6. How will I know if an existing tax treaty is modified by the MLI? ...... 1125
7. Will consolidated versions of modified treaties be prepared?................. 1126
8. Does the MLI modify all tax treaties in the same manner? .................... 1126
9. Why is the MLI a flexible instrument? ..................................................... 1126
10. How is this flexibility reflected in the MLI? ............................................ 1126
11. Is the MLI an à la carte instrument?......................................................... 1127
12. Are there MLI provisions for which the MLI offers no flexibility
at all? ........................................................................................................... 1127
13. Where are Signatories’ tax treaty policy decisions reflected? ................. 1127
14. Can Signatories opt in for certain MLI provisions later in time (after
signature)? ................................................................................................... 1127
15. When will the modifications become effective? ...................................... 1128
16. How will the OECD provide further clarity? ........................................... 1128
17. Will the MLI be a model for future implementation of treaty
standards? ..................................................................................................... 1128
1122
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
18. Will other jurisdictions sign the MLI after the MLI signing
ceremony on 7 June? ................................................................................. 1128
19. Will the OECD support the ratification processes of jurisdictions
signing the MLI? ......................................................................................... 1129
20. In what form will MLI Positions be published online? ......................... 1129
21. When will the public have full access to countries’ MLI Positions? .... 1130
22. What tools will the OECD make available to make the MLI
Positions accessible? ................................................................................... 1130
23. How will the OECD track future changes to MLI positions?.................. 1130
24. What is the impact of the MLI on the worldwide network of tax
treaties? ......................................................................................................... 1130
SPECIFIC FAQ’s
25. What is mandatory binding MAP arbitration? ........................................ 1131
26. In how many treaties will arbitration be introduced? ............................. 1131
27. How does the MLI introduce mandatory binding arbitration into
more than 150 treaties?............................................................................... 1131
28. How can a jurisdiction adopt the MLI provisions on arbitration? ........ 1132
29. When can a taxpayer apply for arbitration under a treaty for
which Part VI applies? ............................................................................... 1132
30. What is treaty shopping? ........................................................................... 1132
31. How does treaty shopping work in practice? .......................................... 1133
32. How does the MLI address treaty abuse and treaty shopping? ............. 1134
33. What is the Principal Purposes Test and how does it address
treaty abuse? ............................................................................................... 1134
34. Why are there alternatives to address treaty abuse in the MLI? ............ 1135
35. What will be the impact of the MLI treaty abuse provisions on
CIVs and Pension Funds? .......................................................................... 1136
36. How will compliance with the minimum standard on treaty
abuse be monitored?.................................................................................... 1136
37. How will the MLI change the definition of permanent establishment?. 1136
38. Does the MLI change the rules for attribution of profits to permanent
establishments?............................................................................................. 1137
39. How does the MLI make dispute resolution mechanisms more
effective? ....................................................................................................... 1137
40. How will compliance with the minimum standard on dispute
resolution be monitored? ........................................................................... 1137
41. Is this the end for bilateral treaties? ........................................................ 1137
GLOSSARY ................................................................................................................. 1138
1123
MLI (including Overview of BEPS) – A Compendium
GENERAL FAQ’s Abuse of tax treaties is an important source
1. How does the of base erosion and profit shifting (BEPS).
The MLI helps the fight against BEPS by
MLI help the implementing the tax treaty-related measures
fight against base developed through the BEPS Project in existing
erosion and profit bilateral tax treaties in a synchronised and
shifting (BEPS)? efficient manner. These measures will prevent
treaty abuse, improve dispute resolution,
2. What is the prevent the artificial avoidance of permanent
coverage of the establishment status and neutralise the effects
MLI? How many of hybrid mismatch arrangements.
treaties will be
modified? Over 70 jurisdictions participated in the first
signing ceremony of the MLI on 7 June 2017,
during which 76 countries and jurisdictions
have signed the MLI or have expressed their
intention to sign the instrument:
o 67 countries and jurisdictions have signed
the MLI, covering 68 jurisdictions.
o Nine countries and jurisdictions have
signed a letter expressing their intent to
sign the MLI.
Therefore, the MLI already has a significant
impact on the worldwide network of
tax treaties, and additional countries and
jurisdictions are actively working to prepare for
signature in the near future. As more countries
are joining the MLI, the number of matched
agreements will increase rapidly. You can find
the updated numbers of Signatories and of
tax treaties listed and matched on the OECD
website at oe.cd/mli.
1124
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
3. Have developing The MLI was developed by a group of over 100
countries been part countries and jurisdictions, including many
of the development developing countries. Developing countries
process of the have shown great interest in signing the MLI
MLI? and have started their technical preparations
to sign. Many of them however needed more
time to complete the domestic procedures
for Signatories. It is expected that many
additional countries will sign the MLI by
year-end, including a significant number of
developing countries. The OECD has supported
these countries in the completion of their
domestic procedures and will continue to offer
its support.
4. How many The Principal Purpose Test will apply to all
Signatories choose treaties covered by the MLI, introducing this
to implement the rule to the over 1,100 treaties already covered
Action 6 minimum by the MLI.
standard with the In addition, jurisdictions can choose to
PPT? supplement the provisions of the Principal
Purposes Test with a simplified Limitation on
Benefits test. You can see which Signatories
chose this option on the OECD website at
oe.cd/mli.
5. Why have the The Signatories of the MLI cover already 85%
Signatories not of the treaties that they have concluded among
listed all their themselves. In most cases, for the remaining
existing tax treaties, renegotiations on a bilateral basis have
treaties? already started or the Signatories continue their
matching discussions and will decide later
whether to list a treaty or to update the treaty
bilaterally through an amending protocol.
6. How will I know The MLI modifies tax treaties that are “Covered
if an existing tax Tax Agreements”. A Covered Tax Agreement
treaty is modified is an agreement for the avoidance of double
by the MLI? taxation that is in force between Parties to the
MLI and for which both Parties have made
a notification that they wish to modify the
agreement using the MLI. Lists of notified tax
treaties by jurisdiction can be found in the MLI
Positions available at oe.cd/mli.
1125
MLI (including Overview of BEPS) – A Compendium
7. Will consolidated For most countries, there is no legal
versions of requirement to prepare consolidated texts
modified treaties of modified treaties. Also, the MLI does not
be prepared? amend treaties like an amending protocol.
Instead, the MLI modifies treaties by sitting
8. Does the MLI alongside treaties. However, for purposes of
modify all tax clarity, many governments may produce some
treaties in the form of consolidated text as guidance to aid
same manner? readers. Given that Signatories’ positions can
change significantly until ratification of the
9. Why is the MLI, most Signatories will not start to prepare
MLI a flexible consolidated versions immediately.
instrument?
No. The MLI is a flexible instrument which will
10. How is this modify tax treaties according to a jurisdiction’s
flexibility reflected policy preferences with respect to the
in the MLI? implementation of the tax treaty-related BEPS
measures. Before signature, jurisdictions must
accordingly analyse their tax treaty networks
and determine how they would want the MLI
to affect and modify their tax treaties.
The flexibility provided by the MLI is intended
to accommodate a variety of tax policies while
still ensuring that the tax treaty-related BEPS
measures are effectively implemented. The
MLI’s flexibility also reflects the circumstance
that certain elements of the BEPS minimum
standards on treaty abuse and dispute
resolution developed through the BEPS Project
may themselves be implemented in different
ways.
The MLI provides for different types of
flexibility: jurisdictions can choose amongst
alternative provisions in certain MLI articles;
jurisdictions can choose to apply optional
provisions (for instance, the provisions on
mandatory binding arbitration); and, in certain
cases, jurisdictions may choose to reserve the
right not to apply MLI provisions (to opt out
through a “reservation”) with respect to all of
their Covered Tax Agreements or with respect
to a subset of their Covered Tax Agreements.
1126
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
11. Is the MLI an à la Jurisdictions only have the possibility to opt
carte instrument? out of provisions that do not reflect a BEPS
minimum standard,with the possibility to
12. Are there MLI withdraw their reservation (and opt in) later.
provisions for
which the MLI No. The MLI does not permit jurisdictions to
offers no flexibility make treaty-by-treaty choices when they decide
at all? how they want the MLI to affect and modify
their tax treaties. Instead, before signature,
13. Where are jurisdictions are generally required to express
Signatories’ tax how they want the MLI to modify their Covered
treaty policy Tax Agreements.
decisions reflected?
The MLI covers the treaty-related minimum
14. Can Signatories standards that were agreed as part of the BEPS
opt in for certain Package in November 2015 and to which all
MLI provisions countries and jurisdictions within the Inclusive
later in time (after Framework on BEPS have committed. These
signature)? minimum standards relate to the prevention
of treaty abuse (BEPS Action 6) and the
improvement of dispute resolution (BEPS
Action 14). Where an MLI provision reflects an
agreed BEPS minimum standard, a jurisdiction
must meet the minimum standard when signing
the MLI. Certain elements of these minimum
standards can, however, be met in different
ways provided for in the MLI.
Each Signatory must prepare and submit its
“MLI Position” before signing the MLI. The MLI
Position sets out all of the Signatory’s choices
with respect to the different options provided
for in the MLI. Provisional MLI Positions of
Signatories are available at oe.cd/mli.
The provisional MLI Position of each Signatory
indicates the tax treaties it intends to cover,
the options it has chosen and the reservations
it has made. Signatories can amend their
MLI Positions until ratification. Even after
ratification, Parties can choose to opt in with
respect to optional provisions or to withdraw
reservations.
1127
MLI (including Overview of BEPS) – A Compendium
15. When will the It is likely that the first modifications to
modifications covered treaties will become effective in
become effective? the course of 2018. The timing of entry into
effect of the modifications is linked to the
16. How will the completion of the ratification procedures in the
OECD provide jurisdictions that are parties to the covered tax
further clarity? treaty.
17. Will the MLI be a The Signatories will inform the OECD of the
model for future completion of their ratification procedures. As
implementation of the Depositary of the MLI, the OECD will be
treaty standards? tracking ratification procedures completed by
the MLI Signatories and will make available to
18. Will other the public all relevant information on effects of
jurisdictions sign the MLI provisions.
the MLI after
the MLI signing The OECD Secretariat is developing tools
ceremony on and guidance on the MLI. The first tools are
7 June? already available at oe.cd/mli. These tools
include interactive flowcharts on each of the
substantive MLI Articles and the MLI Toolkit
on the application of the MLI.
The MLI is a milestone for international
taxation and treaty law as it allows all
interested jurisdictions to update tax treaties
with provisions reflecting internationally agreed
standards. By providing an efficient instrument
to swiftly and consistently implement these
standards in the extensive network of existing
bilateral tax treaties, the MLI could pave the
way for the future of tax treaties in a fast-
moving globalised environment.
The MLI remains open for signature to all
interested jurisdictions after the signing
ceremony of 7 June 2017. A large number
of jurisdictions are actively working towards
signature of the MLI and more are expected
to follow by the end of 2017. At the occasion
of the 7 June signing ceremony, a group of
countries have already explicitly expressed their
intent to sign the MLI as soon as possible. It is
expected that many other jurisdictions will sign
1128
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
19. Will the OECD the MLI in the course of 2017. The OECD and
support the other international and regional organisations
ratification will provide extensive support to prepare
processes of these governments for signature in the coming
jurisdictions period. Support will be provided to interested
signing the MLI? jurisdictions through dedicated regional
events,one-on-one workshops and online
20. In what form will materials and tools.
MLI Positions be
published online? In the first place, jurisdictions signing the MLI
are in charge of completing their domestic
process to ratify the MLI. The OECD will
provide a platform through the ad hoc Group
to share experiences and information in the
ratification processes and to make tools and
materials available that support the technical
work involved in countries’ ratification
processes.
Upon signature of the MLI, Signatories are
required to submit their MLI Positions to the
Depositary. MLI Positions are documents of
10 to 60 pages, the length of which varies
depending on the number of treaties a
jurisdiction wishes to modify with the MLI
and its policy choices. The PDF version
of Signatories’ MLI Positions will be made
available on the OECD Website upon signature
of the MLI. The MLI Positions have been
based on a template developed by the
OECD Secretariat to ensure consistency in
the formulation of the options chosen
and reservations made by the Signatories.
The content of MLI Positions will remain
provisional until ratification of the MLI.
The OECD Webpage will present a list of
jurisdictions for which MLI Positions are
available.
1129
MLI (including Overview of BEPS) – A Compendium
21. When will the The provisional MLI Positions of the Signatories
public have full will be made public on the OECD website
access to countries’ shortly after the June 7 signing ceremony. An
MLI Positions? up-to-date list of the MLI Signatories as well as
their provisional MLI Positions are available at
oe.cd/mli.
22. What tools will The OECD expects to launch a public online
the OECD make matching tool. The tool will be based on a
available to make database containing all relevant data from
the MLI Positions the MLI Positions, facilitating the analysis
accessible? of information. As a next step, the matching
tool could also simulate the likely matching
outcome, while noting that the final matching
process is one of legal interpretation of the
formal documents. The tool will be expanded
and refined over the next couple of years, for
example to include detailed information on
the timing of the modifications made by the
MLI. The first parts of the tool will be made
available as soon as possible, when all data
will be carefully processed and analysed by
the Signatories and the OECD Secretariat. It is
expected that a beta version of the tool will be
available by October.
23. How will the The OECD will be the Depositary for the MLI.
OECD track future The MLI requires Signatories to notify all
changes to MLI changes to their MLI Positions to the Depositary
positions? in order for those changes to become effective.
The Depositary will record and publish all
future changes made to MLI Positions.
24. What is the impact The number of jurisdictions that have already
of the MLI on the signed the MLI or that have expressed their
worldwide network intention to sign the MLI is already impressive,
of tax treaties? and the MLI will accordingly modify a
significant and growing number of treaties.
Signatories include developed and developing
jurisdictions, including financial centres and
treaty-shopping hubs. With a large number of
treaties covered and with key countries included,
treaty-shopping structures will come to an end
as the anti-abuse provisions are introduced in
the treaty networks of treaty-shopping hubs.
1130
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
SPECIFIC FAQ’s The mutual agreement procedure (MAP)
25. What is mandatory article of tax treaties based on the OECD and
UN Models provides a mechanism to resolve
binding MAP disputes in cases in which a taxpayer considers
arbitration? that he has been taxed in a manner inconsistent
with the provisions of the treaty. One weakness
26. In how many of this mechanism is that the MAP article does
treaties will not require to parties to the treaty to resolve the
arbitration be dispute but only to use their best efforts to do
introduced? so. As a result, some MAP cases may remain
unresolved for long periods or never be resolved
27. How does the when it is not possible to reach an agreement.
MLI introduce Mandatory binding arbitration is a mechanism
mandatory binding which, in defined circumstances, obliges the
arbitration into parties to the treaty to submit unresolved issues
more than 150 in a MAP case to an independent and impartial
treaties? decision-maker – an arbitration panel. The
decision reached by the arbitration panel is
binding on the parties to the treaty and thus
resolves the issues that can otherwise prevent
agreement in deadlocked MAP cases.
You can see which Signatories chose to
introduce the arbitration provisions on the
OECD website at oe.cd/mli. This will lead to
the introduction of arbitration to over 150
existing treaties. Most of the countries opting
in for arbitration have opted for the default
option of final offer arbitration (also referred
to as “baseball arbitration”) as provided for in
Article 23(1) of the MLI.
The MLI introduces the MAP arbitration
provisions that are included in Part VI of the
MLI into treaties concluded by Parties opting
in for these provisions. It is expected that the
provisions will apply to more than 150 existing
treaties. This ensures that taxpayers that initiate
a case under the mutual agreement articles
procedure of these treaties will be certain that
their cases will be resolved and double taxation
will be eliminated in accordance with the treaty.
1131
MLI (including Overview of BEPS) – A Compendium
28. How can a A jurisdiction and its treaty partner must
jurisdiction adopt expressly choose to adopt Part VI in order for
the MLI provisions the MLI arbitration provisions to apply. As a
on arbitration? result, mandatory binding arbitration will be
available to resolve disputes in relation to a
29. When can a specific Covered Tax Agreement only where
taxpayer apply for both Contracting Jurisdictions to that Covered
arbitration under Tax Agreement have expressly chosen to adopt
a treaty for which it.
Part VI applies?
Where Part VI applies to a particular Covered
30. What is treaty Tax Agreement, Article 19 of the MLI provides
shopping? that a taxpayer will be able to request
arbitration with respect to the unresolved issues
in a MAP case when the competent authorities
are unable to reach an agreement to resolve the
case within a period of two or three years.
“Treaty shopping” generally refers to
arrangements through which a person who is
not a resident of one of the two States that
concluded a tax treaty may attempt to obtain
indirectly benefits that the treaty grants only
to residents of these States. These strategies
are often implemented by establishing
intermediary companies that may be qualified
as “letterboxes”, “shell companies” or
“conduits” in jurisdictions that have networks
of favourable tax treaties. Such companies
typically exist on paper only and have no
(or minimal) substance or activities in the
jurisdictions in which they are created. In
general, the parties to a bilateral tax treaty
would not intend these types of companies
or similar entities to obtain the benefits of
the treaty. Treaty shopping can be addressed
through changes to bilateral tax treaties
implementing the minimum standard agreed
in the context of Action 6 of the BEPS Project.
Æ For more information, also see the Frequently
Asked Questions on Action 6.
1132
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
31. How does treaty An example of treaty shopping is set out in this
shopping work in video developed by the OECD on the occasion
practice? of the launch of the BEPS Package in 2015.
As explained in the video, treaty shopping
occurs when a person seeks to take advantage
of a tax treaty concluded by two Contracting
Jurisdictions to obtain tax treaty benefits
it could not otherwise obtain. This could
be the case, for example, when this person
is a resident of a jurisdiction that has not
concluded a tax treaty with the jurisdiction
where the income arises. In the example
set out in the video, Company A, a resident
of the Cayman Islands,wants to provide a
license for the use of intellectual property to
Company C in South Africa. South Africa,
however, has not concluded a tax treaty
with the Cayman Islands, and would thus be
entitled to apply its domestic withholding
tax rate on outbound royalties. However, a
European country has concluded a tax
treaty with South Africa that reduced the
withholding tax rates on royalties. Also, this
country does not itself levy a source tax on
royalties. Therefore, Company A establishes a
letterbox company in this European country
and diverts the royalty payments through
the letterbox company to reduce the tax
withheld by South Africa. In this example,
the principal purpose of the establishment
of the arrangement including the letterbox
1133
MLI (including Overview of BEPS) – A Compendium
32. How does the MLI company was to obtain the lower withholding
address treaty tax rate available under the tax treaty between
abuse and treaty South Africa and the European country.
shopping?
Similar schemes can also be established to
33. What is the escape capital gains tax (for example, with
Principal Purposes respect to sales of shares in source State
Test and how does companies or of other movable property),
it address treaty where letterbox companies are established in
abuse? jurisdictions that have concluded tax treaties
with source jurisdictions including provisions
1134 that limit the taxing rights of the source
jurisdictions to tax the capital gains.
The MLI contains six Articles to address treaty
abuse. Two of these provisions reflect the
Action 6 minimum standard on treaty abuse
and the four other provisions are specific
anti-abuse rules that target specific avoidance
strategies.
The Principal Purposes Test that is introduced
in all treaties covered by the MLI is an effective
instrument to counter arrangements such as
those described above that have been put in
place for the principal purpose to obtain the
benefits of a tax treaty.
The Principal Purposes Test (PPT) is an anti-
abuse rule based on the principal purposes of
transactions or arrangements. This rule provides
a general way to address cases of treaty abuse,
including treaty-shopping situations, such as
certain conduit financing arrangements that are
not covered by more specific anti-abuse rules.
Once introduced to a tax treaty through the
MLI or bilateral negotiations, the PPT would
apply to the treaty in its entirety and would
address all cases of treaty abuse. Under
the PPT, if one of the principal purposes of
transactions or arrangements is to obtain
treaty benefits (e.g., a lower withholding tax
in the case of a treaty shopping scheme),
these benefits would be denied unless it is
established that granting these benefits would
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
34. Why are there be in accordance with the object and purpose
alternatives to of the provisions of the treaty. The PPT is a
address treaty subjective test based on an assessment of the
abuse in the MLI? intentions behind a transaction or arrangement.
This approach is similar to approaches taken
under domestic anti-abuse rules or doctrines
applied by countries around the world, such
as general anti-avoidance rules or an ‘abuse of
laws’ doctrine.
The PPT provisions included in the MLI
establish that a tax authority may deny the
benefits of a tax treaty where it is reasonable
to conclude, having considered all the
relevant facts and circumstances, that one of
the principal purposes of an arrangement or
transaction was for a benefit under a tax treaty
to be obtained. The Action 6 Report of the
BEPS Package includes detailed guidance and
examples in the form of the commentary that
was developed during the course of the BEPS
Project and has particular relevance in this
regard.
In reality, treaty shopping schemes typically
involve the use of layered structures abusing
the provisions of multiple tax treaties. Now that
the PPT will be introduced in a large number
of treaties, the treaty shopping routes will be
blocked effectively.
Treaty abuse, like the abuse of domestic law,
can be addressed through a combination of
(i) specific anti-abuse rules, which provide
greater certainty but can only deal with
known abusive strategies, and (ii) general
anti-abuse rules or judicial doctrines, which
are less certain but offer protection against
abusive transactions that have not previously
been identified or addressed. Both of these
approaches can be equally effective to address
treaty abuse, but countries have different legal
environments and policy preferences. Therefore,
1135
MLI (including Overview of BEPS) – A Compendium
35. What will be the the MLI and the minimum standard on treaty
impact of the abuse guarantee that treaty abuse is targeted
MLI treaty abuse effectively and that countries have some
provisions on flexibility in deciding which anti-abuse rules
CIVs and Pension to adopt.
Funds?
Since the investment decisions of Collective
36. How will Investment Vehicles, REITs and pension funds
compliance with are typically not dictated by their beneficiaries,
the minimum these investment vehicles do not raise the same
standard on treaty-shopping concerns as entities such as
treaty abuse be private companies.
monitored?
Like the minimum standard on dispute
37. How will the resolution, the implementation of the minimum
MLI change standard on treaty abuse will be evaluated
the definition through a monitoring mechanism in order to
of permanent ensure that the commitments embodied in the
establishment? Action 6 minimum standard are effectively
satisfied. The relevant Peer Review documents
have been published on the OECD website.
Changes to the permanent establishment
(PE) definition developed through the work
on BEPS Action 7 and included in the MLI
address techniques used to inappropriately
avoid the existence of a PE, including
through the replacement of distributors
with commissionnaire arrangements,through
strategies where contracts which are
substantially negotiated in a State are not
formally concluded in that State because they
are finalised or authorised abroad, or where the
person that habitually exercises an authority
to conclude contracts in the name of a foreign
enterprise claims to be an “independent agent”
even though it is acting exclusively or almost
exclusively for closely related enterprises. These
changes also address strategies based on the
specific activity exceptions in Article5(4) of
the OECD Model Tax Convention by restricting
these exceptions to preparatory or auxiliary
activities and by addressing the fragmentation
of business activities between closely related
1136
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
38. Does the MLI enterprises in order inappropriately to take
change the rules advantage of these exceptions.
for attribution
of profits to Æ For more information, also see the Frequently
permanent Asked Questions on Action 7.
establishments?
The MLI addresses challenges related to
39. How does the permanent establishments only by modifying
MLI make the permanent establishment definition in
dispute resolution Covered Tax Agreements – the MLI does not
mechanisms more change the rules on the attribution of profits to
effective? permanent establishments in Article 7.
40. How will Recognising the need to do better in this area,
compliance with jurisdictions have agreed through the work on
the minimum BEPS Action 14 on a minimum standard and a
standard on number of best practices in relation to dispute
dispute resolution resolution. The minimum standard will ensure
be monitored? that treaty obligations related to the mutual
agreement procedure are fully implemented in
41. Is this the end for good faith and that administrative processes
bilateral treaties? promote the prevention and timely resolution
of treaty-related disputes.
Æ For more information, also see the Frequently
Asked Questions on Action 14.
Like the minimum standard on treaty abuse, the
implementation of the minimum standard on
dispute resolution will be evaluated through a
monitoring mechanism in order to ensure that
the commitments embodied in the minimum
standard are effectively satisfied.
Jurisdictions will continue to conclude tax
treaties on a bilateral basis. The MLI only
modifies existing bilateral agreements. It is
expected that jurisdictions will include treaty
related BEPS measures in future bilateral tax
treaties.
1137
MLI (including Overview of BEPS) – A Compendium
GLOSSARY
Compatibility Clause Clauses which define the relationship between
the provisions of the MLI and existing tax
treaties in objective terms and the effect the
provisions of the MLI may have on Covered Tax
Agreements.
Contracting Jurisdiction Party to a Covered Tax Agreement under the
Multilateral Instrument.
Covered Tax Agreement An Agreement for the avoidance of double
(CTA) taxation with respect to taxes on income that
is in force between two or more Parties and/or
jurisdictions which respect to which each such
Party has notified to the Depositary as a listed
agreement under the Multilateral Instrument.
Matching Exercise Process to match reservations and notifications
made under the Multilateral Instrument by one
Contracting Jurisdiction with the reservations
and notifications made by another Contracting
Jurisdiction to a Covered Tax Agreement to
translate possible effects of the MLI on that
Covered Tax Agreement.
MLI Position Choices and options made by a Signatory or
Party to the MLI and provided to the Depositary
on listed tax agreements, reservations and
notifications of optional provision chosen and
existing treaty provisions.
Notification Information submitted to the Depositary
to ensure clarity and transparency on the
application of alternative or optional provisions
of the MLI and on the application of provisions
that supersedes or modifies specific types of
existing provisions of a Covered Tax Agreement.
Notification clause Clauses reflecting requirements with respect
to notifications to be made to the Depositary
by a Signatory or a Party to the MLI and that
describes the consequences of a mismatch
between the Contracting Jurisdictions to a
Covered Tax Agreement.
1138
Ann 7 — FREQUENTLY ASKED QUESTIONS ON THE MULTILATERAL . . .
Notification mismatch Cases in which –
Party • a notification is not made in accordance
Reservation with requirements a notification clause of
the MLI, or
Reservation clause
Signatory • the Contracting Jurisdictions to a Covered
Substantive Provisions Tax Agreement have made different
notifications with respect to the same
provision of the MLI, or
• one of the Contracting Jurisdictions to
a Covered Tax Agreement has made a
notification with respect to a provision
of the MLI and the other Contracting
Jurisdiction did not make any notification
with respect to that provision of the MLI.
State or jurisdiction for which the Multilateral
Agreement has entered into force.
Where a substantive provision of the
Multilateral Instrument does not reflect a
minimum standard, a Party is generally given
the flexibility to opt out of the provision
entirely or, in some cases, partly. Where a Party
uses a reservation to opt out of a provision, that
provision will not apply between the reserving
Party and all other Parties to the Covered Tax
Agreements under the Multilateral Instrument.
The substantive provisions of the Multilateral
Instrument contain list of permitted
reservations with respect to each provision of
the MLI.
State or jurisdiction which has signed the
Multilateral Instrument.
Parts II to V (Articles 3 to 17) are the
substantive provisions of the Multilateral
Instrument reflecting the tax treaty related
measures presented in the BEPS Package. These
provisions generally duplicate the language
of the provisions of the OECD Model Tax
Convention as amended in the course of the
BEPS Project.
1139
MLI (including Overview of BEPS) – A Compendium
Template Document prepared by the OECD Secretariat
aiming to help states or jurisdictions to
form their lists of Covered Tax Agreements,
reservations and notifications (MLI position) in
a streamlined way before its submission to the
MLI Depositary.
1140
Ann 8 — MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY . . .
8 Multilateral Convention to Implement Tax
Treaty Related Measures to Prevent Base
ANNEXURE Erosion and Profit Shifting:
Entry into effect under Article 35(1)(a)
Note by the OECD Secretariat
1. This note, prepared with the assistance of the OECD Directorate for
Legal Affairs, seeks to clarify the interpretation and application of Article
35 of the Multilateral Convention to Implement Tax Treaty Related Measures
to Prevent Base Erosion and Profit Shifting (the MLI) on the entry into effect
of the provisions of the MLI.
2. The question which has arisen on Article 35(1)(a) is this: when will
the MLI have effect for taxes withheld at source where the latest of the dates
of entry into force of the MLI for a pair of Contracting Jurisdictions is on
1 January of a given calendar year?
3. The text of Article 35(1)(a) of the MLI reads as follows:
"1. The provisions of this Convention shall have effect in each
Contracting Jurisdiction with respect to a Covered Tax
Agreement:
a) with respect to taxes withheld at source on amounts paid
or credited to non-residents, where the event giving rise
to such taxes occurs on or after the first day of the next
calendar year that begins on or after the latest of the dates
on which this Convention enters into force for each of the
Contracting Jurisdictions to the Covered Tax Agreement;
[…]"
4. For example, if the second of the pair of Contracting Jurisdictions
deposits its instrument of ratification on 15 September 2018, the date of
entry into force of the MLI for that Contracting Jurisdiction pursuant to
Article 34 of the MLI will be 1 January 2019. The question which has been
raised is whether the inclusion of the word “next” in Article 35(1)(a) means
1141