Multilateral Instrument Transforming International Tax Treaties

Multilateral Instrument   

Transforming International Tax Treaties

Multilateral Instrument Transforming International Tax Treaties
  1. Introduction

    The MLI is among the most important and crucial BEPS Action Plans for the purposes of implementing tax treaty-related measures in order to prevent the erosion of the taxable base and the shifting of profits. In this issue, we outline the MLI’s purpose, its key provisions, and its impact on the UAE tax treaties.

  2. MLI – The UAE roadmap
    • June 2018 - Signing of MLIs
    • May 2019 - Deposition of Instrument of Ratification
    • September 2019 - Entry into force
    • 114 DTTs listed as covered tax agreements

    1. 47 Non- Signatories of MLI.
    2. 67 Signatories of MLI.
    3. 21 MLIs in force.
    4. 46 MLIs not in force.

  3. Key Impact of the MLI
    • Additional wording in the preamble of DTT states it should not be used for treaty abuse
    • Strengthening the dispute resolution process through Mutual Agreement Procedure
    • Retaining the existing permanent establishment (“PE”) definition
    • Retaining the existing position on the taxation of capital gains realized on real estate rich entities

  4. Implementation challenges
    • Diverse national approaches

    Requiring coordination and alignment of different countries’ tax systems

    • Retroactive application003F 

    Necessitating diligent review and potential modifications to existing tax arrangement

    • Notification and reservation requirements

    Timely communication and handling of reservations, can be logistically challenging for the countries involved

  5. Key Takeaways
    • MLI introduces provisions to prevent treaty abuse and artificial avoidance of PE status.
    • MLI streamlines the modification of bilateral tax treaties, promoting consistency and predictability in international tax rules.
    • Businesses operating across borders benefit from reduced double taxation risks and simplified compliance requirements under the MLI.

Contact Us

Markus Susilo
Markus Susilo
Partner- Payroll and Indirect Tax
Alessandro Valente
Alessandro Valente
Director - International Tax Service & Transfer Pricing