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MLI Decoded – Impact on India’s Tax Treaties


Multilateral Convention To Implement Tax Treaty Related Measures To Prevent Base Erosion And Profit Shifting (the ‘MLI’) was adopted by an ad hoc group of countries on 24 November 2016 and was first signed by over 70 countries including India on 7 June 2017. The Multilateral Convention aims to implement BEPS countermeasures and apply them to a large number of bilateral and regional tax treaties. The MLI deals with treaty-related measures under BEPS Action 2 (Hybrid Arrangements), Action 6 (Treaty Abuse), Action 7 (Avoidance of Permanent Establishment) and Action 14 (Dispute Resolution).

Article 1 of the MLI describes its Scope sparsely as follows:

This Convention modifies all Covered Tax Agreements as defined in subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms).

The Preamble to the MLI declares the need to ensure swift, co-ordinated and consistent implementation of the treaty-related BEPS measures in a multilateral context which the MLI intends to fulfil. This multilateral agreement implements treaty-related BEPS measures by speedily modifying existing tax treaties avoiding bilateral negotiations to amend tax treaties. The covered tax agreements are the tax treaties that are notified by the signing countries to be covered by the MLI provisions.

Modification of CTAs

The MLI does not act as a protocol to a treaty. A protocol to a treaty amends the treaty by changing its text while the MLI is a separate agreement which is to be applied together with the relevant treaty provision which it seeks to modify. It is an independent agreement but operates alongside existing tax treaties.

Notably, only a single set of legal obligations of the contracting countries arise with respect to a CTA between them.  In other words, there is no obligation arising out of the MLI which is distinct from the ones arising out of a CTA (as modified by the MLI) for the countries which have signed the MLI.

The interpretation of a treaty (which the MLI is), and that of the CTA as modified by the MLI, is a complicated exercise. The various reservations, notifications and opt-ins in the MLI which are used by the various signatories to the MLI leave one struggling to piece together. The different types of compatibility clauses determine how the MLI provisions interact with the provisions in the covered tax agreements (‘CTA’) and trigger their modification.  However, to read and apply the provisions of a double tax avoidance agreement, it is necessary first tounderstand how the MLI impacts that agreement and to what extent it modifies it. This work aims to extend our understanding of this important exercise.

MLI Decoded – How the Referencer works

The attached spreadsheet provides a ready reference to the various observations and notifications given by the Contracting Jurisdictions with respect to the tax treaties which India has signed. It also illustrates how these reservations and notifications of the two contracting countries interact with each other.

How the MLI works is described taking into account the reservation and notification under each substantive Article of the MLI (i.e. from Article 3 to 17). The results arrived at by the OECD MLI Matching Database for each MLI Article have been compared and mismatches included in the Comments (Column U).

This Referencer also provides a look of the existing Treaty provisions as modified by the MLI. In contrast to the various synthesised texts published by the CBDT and other tax authorities, this work attempts to provide a modified text of the changed provisions. Such a modified text will facilitate the reader to appreciate the nature and extent of modifications to the pre-MLI tax treaty provisions which are carried out by the MLI.

Being a spreadsheet, this utility provides for filtering options. For instance, if the reader wishes to view the effect of the MLI on India’s treaty with Austria, a filter on ‘India’s Treaty Partner’ (Column C) for Austria will through up the result within a second. Or, if the reader is interested in the result of how the provisions in Austria’s treaty relating to dual resident entities is impacted, an additional filter on ‘MLI-Article’(Column A) will give the result. A combination of filters could be used to mine the data contained in the spreadsheet.

The modified text is colour-coded to make it reader-friendly. The existing text in a CTA which gets replaced is denoted through strike-through while the new text introduced by the MLI is shown in blue italics bold font. The MLI Article is referred to as “MLI-A” while a CTA Article is referred to as “Art.”

Of course, the modified text suggested here is only a plausible view, and the provisions could be interpreted differently. The Referencer helps in drawing much-needed attention to such varied interpretations over the several provisions of India’s treaty network. We are happy to receive feedback on the same.

This project is a continuing one as several of the signatory countries are yet to deposit their final positions. There are several of India’s treaty partners who are yet to sign the MLI. The data in the spreadsheet shall be updated periodically.

Notification No. 57/2019 dated 9-8-2019

MLI Treaty Document and India Position

India’s Treaty Partners – MLI Status

  Abbreviations/Legends   Description

  Article in the Double Tax Avoidance Agreement

  (Referred to in the OECD Matching Database as ‘A.’ )

  CA   Competent authority
  CJ   Contracting jurisdiction
  CS   Contracting states
  CTA   Covered Tax Agreement
  MAP   Mutual Agreement Procedure
 MLI-A.   MLI Article
  P&A   Preparatory or auxiliary (in the context of provisions relating to specific activity exemption dealt with by MLI-A. 13)
  PE   Permanent establishment
  Pr.   Protocol
  Words in strike through   Existing text of a CTA provision which is omitted
  Words in blue and bold fonts   New text while reading a CTA provision as modified by the MLI


This work has been carefully compiled, but no representation is made, or warranty is given (either express or implied) as to the completeness or accuracy of the information it contains. The author nor the Society is liable for the information in this work or any decision or consequence based on the use of it. The author will not be liable for any direct or consequential damages arising from the use of the information contained in this work. The information contained in this work is not intended to be advice on any particular matter. No subscriber or other reader should act based on any matter contained in this work without considering appropriate professional advice. Links to third-party websites, if any, are provided by the author in good faith and are for information only. The author disclaims any responsibility for the materials contained in any other site referenced in this work. The opinions and views expressed in this publication are those of the author. The Society does not necessarily concur with the same. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Bombay Chartered Accountants’ Society.