The Multilateral Instrument and tax treaties – an update

Multilateral Instrument and tax treaties – an update

Denis Larkin provides an update on the Australian tax treaties impacted by the Multilateral Instrument, what synthesised texts are and the treaties the Australian Taxation Office (ATO) has prepared these for.

Denis Larkin

Partner, Deal Advisory – Tax

KPMG Australia


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It has now been two years since Australia, along with many other nations, signed The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). With the MLI now in force for Australia’s Double Tax Agreements (“DTAs”), it is worth taking stock of how the adoption of the MLI is impacting Australia’s DTAs.

Not surprisingly, the impact on a particular treaty will require a careful understanding of both Australia and our treaty partners’ positions in relation to the MLI. As is always, there will be no substitute for reading the words of each text and understanding the parties’ positions.

MLI – the key points

The MLI allows jurisdictions to swiftly modify their tax treaties with the aim of reducing multinational tax avoidance and is a key component of the OECD’s Base Erosion and Profit Shifting (“BEPS”) project.

Australia signed the MLI on 7 June 2017 and, following ratification on 26 September 2018, the MLI entered into force for Australia from 1 January 2019.

It takes two to tango

Ratification by Australia, though, is only the first step in the MLI applying to our DTAs. In order for the MLI to modify a particular DTA, both Australia and the relevant treaty partner need to identify that DTA as a Covered Tax Agreement (CTA). Australia has identified all of its current tax treaties, apart from the DTA with Germany, as CTAs to which it wants to apply the MLI (the reason Germany has not been identified is because it was already ‘BEPS compliant’ and therefore was not seen as requiring any further modification under the MLI).

However, this is far from the end of the story. Many of Australia’s treaty partner countries either have not signed the MLI or, even if they have signed it, have not yet ratified the MLI, meaning that the impact of the MLI on Australia’s treaties continues to evolve. Furthermore, while some of the Articles within the MLI are mandatory, most are optional so each treaty Australia has may be affected differently depending on the positions of both parties. For example, although Australia’s treaties with both New Zealand and the United Kingdom have been modified by the MLI, only New Zealand and Australia have both ratified Article 8 (regarding dividend transfer transactions) and therefore the Australia New Zealand treaty has been modified by Article 8 of the MLI. Conversely, as the United Kingdom hasn’t ratified this particular article (even though Australia has), it won’t apply to Australia’s treaty with the United Kingdom.

Finally, each country may make reservations in relation to the MLI which can modify the way in which the standard OECD MLI clauses will apply to their CTAs. Australia has made several such reservations to the MLI clauses it is adopting so these will also need to be reconciled with the position of its treaty partners.


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