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TOPIC - MULTILATERAL INSTRUMENT (MLI) CONVENTION
MULTILATERAL INSTRUMENT (MLI) CONVENTION
INTRODUCTION
MLI Convention aims to implement Tax Treaty Related Measures to Prevent Base
Erosion and Profit Shifting. On 7th June, 2017, 70 Ministers and other high-level
representatives participated in the signing ceremony of MLI. This Convention is a
product of Organisation for Economic Co-operation and Development
(OECD)/G20 Project to fight BEPS1 which envisages 15 Action plans.
It has been established to provide solutions to the governments to remove the
loopholes present in the existing international tax rules by transposing results from
the OECD/G20 to deal with BEPS into bilateral tax treaties existing in the world.
Flexibility is to be delivered by the MLI as it offers a harmonious combination of
variety of tax policies while still ensuring that the tax treaty related BEPS measures
are effectively implemented. It will modify the tax treaties that are Covered Tax
Agreements according to the jurisdictions policy preferences.
The jurisdictions are given the freedom to anatomize their tax treaty networks and
determine how they would want the MLI to affect and modify their tax treaties.
BEPS Project consists of 15 Action Plans to address BEPS in a comprehensive
manner. It is an onerous job to change more than 3000 bilateral tax treaties for its
effective implementation. To resolve this issue, MLI was conceived to modify all
Covered Tax Treaties2 (Covered Tax Agreements/CTA) to bring the BEPS
measures into action.
1Base Erosion and Profit Shifting (BEPS) basically means the artificial shifting of profits by Multi-national enterprises to low or no tax locations.
Such shifting of profits is attained via loopholes in the tax rules of different countries along with the governing tax treaties. Such actions result in
erosion of the tax base of the country where the value was created and is hence termed as an abuse of the tax framework.
2Covered Tax Agreement (CTA) It is an agreement for the avoidance of double 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.
FUNDAMENTALS OF THE CONVENTION
The Convention strives to implement two minimum standards that all countries to need to adopt.
Article 6 and 7 of the MLI: Prevention of Treaty Abuse
a) By stating in the Preamble of the tax treaties that it intends to eliminate double taxation without
creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance
(including through treaty shopping) (Article 6 of the MLI) and
b) By adopting certain specific anti-abuse provisions (Article 7 of the MLI).
Article 16 of MLI
Improvement of the dispute resolution mechanism in tax treaties to mitigate cases of double taxation
ITS APPLICATION
It will not act as an Amending Protocol to a single existing treaty, which would result in the refashioning of the text of the Covered Tax Agreements.
Instead, it will be applied alongside existing Tax Treaties altering their application in order to implement the BEPS measures. The Convention ensures
consistency and certainty in the implementation of the BEPS Project in a multilateral context. The Convention is very accommodating as it offers the
option to exclude a specific tax treaty and to opt out of provisions or parts of provisions through making reservations.
This very instrument consists of VII Parts and 39 articles which aim to modify bilateral treaties of the countries signatory to the MLI. The respective
articles will provide options to each country to select for adopting in its tax treaties. OECD acts as the Secretariat for the MLI Convention.
Ratification from minimum five signing countries is required for the MLI to operate and come into force. Every country has different domestic
procedures for ratification. MLI will come into force 3 months after such ratification by the fifth country. It is required to enter into effect between the
respective countries post its entry into force from the next taxable year which begins 6 months after the MLI has entered into force for both countries.
INDIAN PERSPECTIVE
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi gave its approval for the Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent Base Erosion and Profit Shifting on 17th May, 2017.
India recently signed the Convention on 7th June, 2017 held in Paris which is the first step in the process of expressing consent to be bound by the
Convention, which will become binding only upon ratification.
A list of Covered Tax Agreements as well as a list of reservations and options chosen by a country are required to be made at the time of signature or
when depositing the instrument of ratification.
The Final List of Covered Tax Agreements and the final list of reservations will be submitted at the time of submission of instrument of ratification.
IMPLIMENTATION
A scholar throughout her life she has been awarded many awards and recognitions including Women Empowerment through CA Profession by Northern
India Regional Council (NIRC) of Institute of Chartered Accountants of India (ICAI). Backed by experience in International firms she has extensive experience
of handling international transactions. She advises corporate as well as government authorities in lot of intricate transactions. Rendering tax and regulatory
advisory services, she has overseen and played a crucial role in the execution of complex international transactions involving issues revolving around tax,
repatriation, minimization of tax exposure, Foreign Investment (Inbound and outbound) etc.
She is on the Board of many esteemed listed companies as Independent director. She is member of Committee of International Taxation of WIRC, ICAI,
Member of Editorial Committee of WIRC of ICAI and Committee of women empowerment of ICAI.
She can be contacted at sudha@taxpertpro.com || 09769033172