OECD multilateral instrument comes into effect

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multilateral

The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (the so-called multilateral instrument, or MLI) entered into force in India on 1 October 2019.

This initiative, spearheaded by the Organization for Economic Co-operation and Development (OECD) enables parties to concurrently modify their bilateral tax treaties to prevent base erosion and profit shifting. India signed the MLI on 7 June 2017, and thereafter had deposited its instrument of ratification, providing for 93 of its tax treaties to be covered by the MLI.

In accordance with the adoption of the provisions under the MLI by contracting parties, the respective Double Taxation Avoidance Agreements (DTAAs) between such parties shall be modified to the extent of the provisions adopted. In order to provide insight into the impact of the MLI on existing treaties, the OECD recently published the new “Guidance for the Development of Synthesized Texts”.

In line with this, the Indian government recently published the English version of synthesized texts of certain amended DTAAs that have entered into force, namely, the India-Singapore DTAA, the India-UK DTAA, the India-Poland DTAA, the India-Brazil DTAA, the India-Australia DTAA, the India-Finland DTAA and the India-Slovak Republic DTAA. Following are summaries of the synthesized texts of the India-Singapore DTAA and India-UK DTAA.

  1. India and Singapore. The synthesized text for the application of the DTAA between India and Singapore was prepared based on instruments of ratification deposited by Singapore and India on 21 December 2018, and 25 December 2019, respectively. The MLI entered into force for Singapore and India on 1 April 2019, and 1 October 2019, respectively.

Unless stated otherwise in the synthesized text, the provisions of the MLI will come into effect with respect to the India-Singapore DTAA as follows:

India:

  • In respect of withholding taxes – 1 April 2020;
  • In respect of other taxes – 1 April 2020.

Singapore:

  • In respect of withholding taxes – 1 January 2020;
  • In respect of other taxes – 1 April 2020.

The articles from the MLI as incorporated in the synthesized text of the India-Singapore DTAA are paragraph 1 of article 6 (Purpose of a Covered Tax Agreement) of the MLI, and paragraph 1 of article 7 (Prevention of Treaty Abuse) of the MLI, with applicable modifications as outlined in the synthesized text.

  1. India and UK. The synthesized text for the application of DTAA between India and the UK was prepared based on the instruments of ratification deposited by India and the UK on 25 June 2019, and 29 June 2018, respectively. The MLI entered into force for India and the UK on 1 October 2019, and 1 October 2018, respectively.

Unless stated otherwise in the synthesized text, the provisions of the MLI will come into effect with respect to India–UK DTAA as follows:

India:

  • In respect of withholding and other taxes – 1 April 2020.

UK:

  • In respect of withholding taxes – 1 January 2020;
  • In respect of corporation taxes in the UK – 1 April 2020;
  • In respect of income and capital gains taxes in the UK – 6 April 2020.

The articles from the MLI as incorporated in the synthesized text of the India-UK DTAA are: Paragraph 1 of article 6 (Purpose of a Covered Tax Agreement) of the MLI; paragraph 1 of article 11 (Application of Tax Agreements to Restrict a Party’s Right to Tax its own Residents); paragraph 1 of article 4 (Dual Resident Entities) of the MLI; paragraph 4 of article 13 (Artificial Avoidance of Permanent Establishment Status through Specific Activity Exemptions); paragraph 1 of article 15 (Definition of a Person Closely Related to an Enterprise); second sentence of paragraph 1 of article 16 (Mutual Agreement Procedure); second sentence of paragraph 3 of article 16 (Mutual Agreement Procedure); and paragraph 1 of article 7 (Prevention of Treaty Abuse) of the MLI with applicable modifications as outlined in the synthesized text.

The business law digest is compiled by Nishith Desai Associates, a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. The firm specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.