Initial impressions of multilateral instrument - KPMG United States
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Initial impressions of multilateral instrument implementing BEPS in tax treaties

Initial impressions of multilateral instrument

Representatives from over 70 jurisdictions on 7 June 2017 participated in an OECD ceremony for the signing of a multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS).


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Tax professionals from KPMG member firms around the globe are considering what may be the effect or implications of the multilateral instrument (MLI) on their subject tax treaties. 

Asia Pacific

The MLI was signed by 11 countries in the Asia Pacific region, and six of these signatories are in the top 20 economies in terms of GDP: China, Japan, India, Korea, Australia, and Indonesia. The remaining countries in the Asia Pacific region that signed the MLI are:  Fiji, Hong Kong, New Zealand, Pakistan and Singapore. 

There are 11 Asia-Pacific countries that did not sign the MLI: Bangladesh, Cambodia, Laos, Malaysia, Mongolia, Myanmar, Papua New Guinea, Philippines, Sri Lanka, Thailand, and Vietnam.


Read a June 2017 report [PDF 1.2 MB] prepared by the KPMG member firm in Australia


  • Australia, with 44 income tax agreements, has an intention to change 29 of the treaties—one included substantially all BEPS changes, nine countries did not sign the MLI, and four countries did not choose the Australian double tax agreement as a “covered tax agreement.”
  • Of the 43 income tax treaties that Australia has chosen as covered tax agreements, nine countries have chosen not to sign up to the MLI—United States, Philippines, Malaysia, Thailand, Vietnam, Taiwan, Sri Lanka, Papua New Guinea, and Kiribati.  A tenth country, Norway, is seeking direction from its parliament before it can commit to signing the MLI, although it is expected that this will occur. 
  • Also of the remaining 33 countries, four countries have not chosen the Australian income tax treaty as a covered tax agreement from their perspective—Austria, Korea, Sweden, and Switzerland. 
  • That leaves 29 countries where there is an intention for both countries to change the treaty—Argentina, Belgium, Canada, Chile, China, Czech Republic, Denmark, Fiji, Finland, France, Hungary, India, Indonesia, Ireland, Italy, Japan, Malta, Mexico, Netherlands, New Zealand, Poland, Romania, Russia, Singapore, Slovak Republic, South Africa, Spain, Turkey, and the United Kingdom. The MLI provided an option for “mandatory binding arbitration.”


Read a June 2017 report prepared by the KPMG member firm in Australia


  • Canada has committed to the “principal purpose test” to address treaty abuse under Action 6 in accordance with the OECD’s minimum standard. 
  • The Finance Department announced that Canada will seek to negotiate, on a bilateral basis, a detailed limitation of benefits provision that would also meet the minimum standard.
  • Canada has chosen to adopt the “mandatory binding arbitration” provision to improve dispute resolution. The rule—intended to guarantee that treaty-related disputes are resolved within a specific time frame—is similar to the mutual agreement procedure article included in the Canada-United States income tax treaty.
  • Finance noted that once Canada ratifies the MLI, it must provide the OECD with its final reservations and notifications (although Canada can still add countries to which the MLI will apply after ratification). Finance also stated that, hypothetically, the entry into force date of the provisions in the MLI would most likely not occur until 1 January 2019 at the earliest.


Read a June 2017 report [PDF 78 KB] prepared by the KPMG member firm in Canada


The first round of MLI updates will update 49 of China’s income tax treaties, and the number may rise to 55 treaties in the near future. 

  • This includes the income tax treaties with most of China’s major trading and investment partners—but not the United States which has not signed the MLI. 
  • The most significant updates will be the insertion of treaty anti-abuse principal purposes test rules into each of the updated income tax treaties along with side a new “preamble” reinforcing anti-treaty abuse rules. 
  • There will also be a general replacement of the corporate tax residence tie-breaker test in the updated income tax treaties, and a modernization of the MAP and transfer pricing articles in older treaties. 
  • The most highly anticipated MLI update, in respect of the new BEPS permanent establishment rules, will not be made to Chinese income tax treaties.


Read a June 2017 report prepared by the KPMG member firm in China

Czech Republic

Until now, it was not clear what approach to MLI the Czech Republic would take. It appears that the Czech Republic will only adopt the minimum standard—i.e., the rule to prevent treaty abuse or the “principal purpose test” and the rule allowing for the effective resolution of disputes by mutual agreement (dispute resolution).

The Czech Republic intends to subject all valid tax treaties to the multilateral convention (except for the treaty with South Korea because it already includes the required provisions). Modifications to each income tax treaty will only be made if the other treaty-partner state also subjects the treaty to the regime of the MLI and if both parties agree on the identical wording of the provision. 

How the MLI will affect bilateral treaties will thus depend on further bilateral negotiations. This means that the implementation may eventually take place in a broader scope than the minimum standard presently proposed by the Czech Republic. 


Read a June 2017 report prepared by the KPMG member firm in the Czech Republic


  • The MLI does not override or amend existing bilateral tax treaties—as an amending protocol does—but is applied alongside the covered tax agreements, modifying their application in order to implement BEPS measures.
  • Signatories can modify their MLI positions until ratification and are required to notify subsequent changes to their MLI position to the OECD before they can become effective.
  • The practical effects of its implementation will depend on the choices and reservations made by the signatories and how tax administrations apply the new provisions in practice. The tools and resources to be developed by the OECD will likely be an essential part of that process.
  • The MLI will only enter into force three months after five countries have ratified, accepted or approved it. Once ratified, the MLI provisions chosen can potentially apply to all covered tax agreements specified by the countries, although a specific covered tax agreement will only enter into force after the parties to that treaty have ratified the MLI. The OECD expects the first modifications to covered treaties to become effective during the course of next year.


Read a June 2017 report prepared by KPMG’s EU Tax Centre


Regarding France's tax treaties, 88 are covered (out of a total of 125 treaties) by the MLI, including those concluded with major business partners—e.g., Germany, the Netherlands, and the United Kingdom. As did several other countries, France also included the treaty concluded with the United States even though the United States was not expected to sign the MLI.

The statements made by France, to date, reveal that the following proposals on permanent establishments (PEs) have been adopted:

  • Dependent agent PE rule
  • Choice of Option B as regards the specific activity exemption
  • Anti-fragmentation rule
  • “Splitting of contracts” rule


Other implications for France's tax treaties include:

  • A reservation has been made to the provisions on hybrid entities (Article 3 of the MLI) considering French specificities on tax-transparent companies.
  • The “principal purpose test” has been adopted (as also adopted by the majority of the MLI signatories). France did not opt for an additional simplified limitation on benefits (LOB) test.
  • France has agreed to the mandatory binding arbitration mechanism (as did 24 other signatories).

These positions taken by France are expected to be confirmed at the time of depositing the instrument ratifying the MLI.


For more information, contact a tax professional at FIDAL* in Paris or KPMG's French Tax Center in New York:

Patrick Seroin | +1 212-954-2523 |

Nathalie Cordier-Deltour| +33 (0)1 55 68 14 54 |


*FIDAL is a French law firm that is independent from KPMG and its member firms.


Concerning the treaties in India's network of income tax treaties:

  • India has notified 93 countries that would be included under its provisional list of “covered tax agreements” (CTA) in the MLI. 
  • Forty-three (43) countries out of the 93 notified have not signed the MLI. 
  • Out of the remaining 50 countries, two countries have not included India in their CTAs. 
  • Forty-eight (48) countries of the 50 countries have signed the MLI and have notified India so that tax treaties with these countries would be amended, incorporating the relevant proposed amendments of the MLI. 


Read a June 2017 report [PDF 378 KB] prepared by the KPMG member firm in India


Concerning the implications of MLI provisions affecting India’s network of income tax treaties include the following:

  • With respect to transparent entities, MLI Article 3—most of India's tax treaties do not have specific provisions dealing with fiscally transparent entities, and India will not apply this article to any of its covered tax agreements.
  • Concerning dual-resident entities—India has not expressed any reservation regarding MLI Article 4, but its applicability to India's treaties will depend on whether its treaty partners have chosen to accept this article or to exclude its application.
  • On alternative ways for elimination of double taxation—India has decided not to apply MLI Article 5 to any of its tax treaties.
  • India has opted to apply the simplified limitation on benefits (LOB) provisions of the three approaches to the prevention of treaty abuse.
  • Concerning the permanent establishment provision—India has not expressed any reservations on MLI Article 12, but its application to India's treaties will depend on whether the treaty partners have also chosen to adopt these provisions. 


Read a June 2017 report [PDF 377 KB] prepared by the KPMG member firm in India


Ireland’s Department of Finance on 2 June 2017 (prior to signing) issued a technical briefing note that set out Ireland’s proposed approach to the introduction of agreed international tax treaty measures under the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the multilateral instrument or “MLI”). Ireland was among the countries signing the MLI on 7 June 2017. 

The first step involves Ireland selecting the proposed measures that it intends to adopt into its network of tax treaties. Certainty of access to tax treaty benefits is critical to Irish-based businesses. This underpins the effectiveness of Ireland’s existing tax treaty network, one of the key attractions of Ireland as a hub for international business. Ireland’s proposed choices are believed to balance effectively its obligations to adopt the agreed international “minimum standard” measures that protect tax treaties from potential misuse, while trying to maintain certainty of access to tax treaty benefits for business operating internationally from an Irish base.


Read a June 2017 report prepared by the KPMG member firm in Ireland, that provides background to the MLI and an analysis of Ireland’s proposed choices.


The Japanese Ministry of Finance on 8 June 2017 released a statement on the MLI, and that briefly explains measures to prevent BEPS, and tax agreements covered by the MLI.


Read a June 2017 report [PDF 125 KB] prepared by the KPMG member firm in Japan


  • Treaty abuse: To meet the BEPS minimum standard on treaty abuse (BEPS 6), Luxembourg has chosen to include a specific preamble text in all of its tax treaties (except for the treaty with Senegal which already has such a preamble). This preamble contains the express statement to eliminate double taxation without creating opportunities for reduced taxation or non-taxation. The preamble also states the desire to enhance co-operation on tax matters. Luxembourg (as all other signing countries) has chosen to include the “principal purpose test”in all of its tax treaties (except for the treaty with Senegal which already includes this test). While the principal purpose test will apply to all treaties covered by the MLI, the OECD mentioned that an additional simplified limitation on benefits (LOB) test will only apply to the treaties of 12 jurisdictions, including Argentina, Armenia, Bulgaria, Chile, Colombia, India, Indonesia, Mexico, Russia, Senegal, the Slovak Republic and Uruguay.
  • Dispute resolution: Luxembourg has chosen to apply the minimum standards for making dispute resolution mechanisms more effective (BEPS 14). Furthermore, Luxembourg has opted in for the mandatory binding arbitration together with the following signatories: Andorra, Australia, Austria, Belgium, Canada, Fiji, Finland, France, Germany, Greece, Ireland, Italy, Liechtenstein, Malta, the Netherlands, New Zealand, Portugal, Singapore, Slovenia, Spain, Sweden, Switzerland and the United Kingdom. This will lead to the introduction of arbitration to over 150 existing treaties. A taxpayer may request a mandatory binding arbitration if the competent authorities were not able to reach a mutual agreement within two years. Luxembourg, like most of the countries, has opted for the default option of final offer arbitration (also referred to as “baseball arbitration”)—each competent authority will submit a proposed resolution addressing all issues under review to the arbitration panel which selects one of the proposed resolutions as its decision.
  • Permanent establishment: Changes to the permanent establishment (PE) definition developed through the work on BEPS 7 were not a minimum standard. Therefore, Luxembourg has decided not to further expand the definition of PE to commissionaire arrangements or similar strategies to include situations in which the dependent agent “habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise.” To prevent artificial avoidance of PE status, Luxembourg has chosen to apply Option B for the specific activity exemption. Thus, certain activities may be carried out in a given treaty country without creating a PE irrespective of whether the activity is of a preparatory or auxiliary character. In this context of specific activity exemptions, Luxembourg will not apply the anti-fragmentation rule. Furthermore, Luxembourg will not prevent artificial avoidance of a PE through splitting up contracts.
  • Hybrid mismatches: Luxembourg has made one reservation as regards transparent entities and reserved the right not to apply the MLI provisions for dual resident entities. For the application of methods for elimination of double taxation, Luxembourg has chosen Option A to address problems arising from the inclusion of the exemption method in treaties with respect to items of income that are not taxed in the source state.


Read a June 2017 report prepared by the KPMG member firm in Luxembourg


The MLI in the Mauritian context covers 23 of the 42 existing tax treaties to which Mauritius is a treaty partner. However, of the 23 tax treaties, eight countries have not signed the MLI. Thus, this leaves 15 tax treaties to be amended by the MLI. For the remaining tax treaties, it is reported that Mauritius will discuss bilaterally with the respective treaty partners in order to implement BEPS minimum standards, at latest by end of 2018.


Read a July 2017 report [PDF 375 KB] prepared by the KPMG member firm in Mauritius


The Dutch Deputy Minister of Finance had previously outlined the Dutch position on the MLI in a March 2017 letter to the Lower House and in an October 2016 position paper. The Ministry of Finance on 7 June 2017 published an information notice with comments on the outcome of the signing ceremony for the Netherlands. The List of Reservations and Notifications for the Netherlands (published 7 June 2017) is mostly in accordance with the previously communicated positions. These include: 

  • The Netherlands has listed 82 tax treaties as “covered tax agreements” and expects a match following the signing ceremony with at least 40 countries. This number is expected to increase if more treaty partners sign the MLI.
  • Contrary to previous communications from the Deputy Minister of Finance, the tax treaties with Germany and France were listed as covered tax agreements (and vice-versa).
  • The provisions on hybrid mismatches (transparent entities and dual resident entities) will apply to all covered tax agreements listed by the Netherlands, with the exception of the provision on transparent entities in relation to treaties concluded with Japan, the UK and the United States, which already contain such provisions.
  • Like all other signatories, the Netherlands has opted to apply the “principal purpose test” to all covered tax agreements. Unlike 12 other jurisdictions, the Netherlands did not opt for an additional simplified limitation on benefits (LOB) test. The burden of proof for tax authorities under the principal purpose test is lower than under the “main purpose test,” as included in some treaties concluded by the Netherlands (e.g., the treaty with the UK). Other covered tax agreements listed by the Netherlands do not contain a principal purpose test, LOB test or main purpose test, and discussions can therefore be expected in relation to the new provision and its interpretation.
  • The provisions that broaden the definition of permanent establishments (e.g., provisions on commissionaire structures, definition of independency, specific activity exemptions and the splitting-up of contracts) will in principle all be implemented with respect to the covered tax agreements listed by the Netherlands, with the exception of the splitting-up of contracts in respect of the exploration and exploitation of natural resources.

The next step is the ratification process in the Netherlands, which is expected to start in the second half of 2017. Assuming ratification by the Netherlands takes place during the course of 2018, the MLI provisions can enter into force for covered tax agreements with a match (listed by jurisdictions that have also ratified before the end of 2018) as of January 1, 2019.


Read a June 2017 report prepared by the KPMG member firm in the Netherlands

New Zealand

Information on New Zealand’s adoption of the MLI, and the positions taken, is available on the Inland Revenue website.


Polish authorities announced its position on 78 income tax treaties will be covered by the MLI. However, not all of these income tax treaties are with countries that have signed the MLI. Among the items in the MLI reflecting Poland's position are the following:

  • Introduction of the limitation on benefits (LOB) clause 
  • Introduction of the tax credit method as a general mechanism for avoiding double taxation
  • Introduction of the real estate clause to the income tax treaties

However, amendments to the permanent establishment provision will not be introduced. Thus, the entry into force of the MLI would not appear to affect the current language of the existing income tax treaties.


Read a June 2017 report [PDF 371 KB] prepared by the KPMG member firm in Poland


The principal purpose test (PPT test) is expected to be applied to certain income tax treaties that Russia has signed, including the treaties with Cyprus, the Netherlands, and Luxembourg. In practice this means that, notwithstanding the lack of specific limitation of benefits provisions in a tax treaty, the ability to benefit from a tax treaty measure could be complicated and will require a real business purpose for creating the structure or for entering into the transaction. 

Preferential rates of withholding tax on dividends will only apply if a person or company is the beneficial owner of the dividends and owns/exercises control for at least 365 days over the necessary amount of capital/shares/participatory interest required under the income tax treaty to qualify for such benefits. Such conditions for lower withholding rates on dividends will apply to the tax treaties with Cyprus, Hong Kong, Luxembourg, the Netherlands, Singapore, and Switzerland, among others. 

Any income from the sale of shares (or a participatory interest) of a Russian company, the assets of which consist of more than 50% real estate located in the Russian Federation, is subject to tax in Russia, notwithstanding the fact that the relevant tax treaty generally exempts gain from the sale of shares from tax in Russia. This provision will apply, if, pursuant to the MLI, a tax treaty signatory announces its intention to follow this approach. For example, the tax treaties with the Netherlands, Singapore, and Austria now exempt gain from the sale of a real property company shares (participation interest) from tax (in respect of Singapore, the criterion is “consist of more than 75% real estate” instead of 50%). The current approach of the income tax treaties will continue to apply, i.e., such exemption will still be available, provided that the anti-avoidance (PPT and other conditions specified in the MLI) are met. 


Read a June 2017 report [PDF 275 KB] prepared by the KPMG member firm in Russia


Singapore has selected 68 out of the possible 82 income tax treaties as potential covered tax agreements (CTAs). Of these 68 tax treaties, three treaty partners—Germany, Sweden, and Switzerland—have not chosen the treaty with Singapore as a CTA, and 17 countries have not signed the MLI. This leaves 47 of the 68 income tax treaties in Singapore’s tax treaty network to be changed with the signing of the MLI.

Singapore has will adopt the following MLI provisions (among others) under the selected CTAs:

  • The BEPS minimum standard for preventing treaty abuse
  • The BEPS minimum standard for enhancing dispute resolution
  • Providing more certainty and timeliness to taxpayers for cross-border disputes


Read a June 2017 report [PDF 408 KB] prepared by the KPMG member firm in Singapore


Switzerland announced at the time of the signing of the MLI that income tax treaties with only 14 countries or jurisdictions—Argentina, Chile, India, Iceland, Italy, Liechtenstein, Lithuania, Luxembourg, Austria, Poland, Portugal, South Africa, the Czech Republic, and Turkey—would be renegotiated and amended through the MLI. If agreements on the technical implementation of the MLI can be obtained with other treaty partners, those corresponding treaties would also be amended at a later stage, and to the extent that an agreement is reached, additional treaty partners may be included.

Switzerland is focusing primarily on the implementation of the BEPS minimum standards, which could alternatively be agreed upon by means of a bilateral tax treaty amendment. This implies that Switzerland has reserved the right not to apply the MLI provisions on matters that go beyond the minimum standards. These include the BEPS provisions concerning transparent entities and dual resident entities, anti-abuse rules for permanent establishments (PEs) situated in third jurisdictions, or the artificial avoidance of PE status through commissionaire arrangements. In the area of treaty abuse, Switzerland opts for the “principal purpose test.” In accordance with this treaty policy, Switzerland will opt for the inclusion of the mandatory and binding arbitration clause, as provided by the MLI.

The new treaty provisions resulting from the implementation of the BEPS minimum standards modify the description of the purpose in the preamble, include a standard anti-abuse clause, and adjust the provisions governing dispute resolution within the framework of mutual agreement procedures. Switzerland has decided to implement the mandatory and binding arbitration provision.

Switzerland’s Federal Council is expected to publish and submit the MLI for public consultation towards the end of 2017, to be followed by the usual parliamentary approval process before it can enter into force. If this process is successful, the MLI items would enter into force at the earliest by 1 January 2019.


Read a June blog item posted by the KPMG member firm in Switzerland

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