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India: Union Cabinet approves ratification of MLI

India: Union Cabinet approves ratification of MLI

India’s Union Cabinet, according to a 12 June 2019 press release, approved the ratification of the multilateral convention or instrument (MLI) to implement tax treaty-related measures.

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The MLI was developed by the Organisation for Economic Cooperation and Development (OECD) as part of its mission to address base erosion and profit shifting (BEPS), and the MLI is to apply alongside existing tax treaties, enabling jurisdictions to modify their treaties to implement the BEPS measures swiftly (instead of a treaty-by-treaty approach).

The MLI (once it enters into force in India) would modify India's existing income tax treaties in an effort to address revenue loss through treaty abuse and BEPS strategies. This would be accomplished by determining that profits are taxed to the location where substantive economic activities generating the profits are conducted and where value is created.

In signing the MLI, India decided to apply the simplified limitation of benefits (LOB) provision along with the mandatory minimum standard of the principal purpose test to counter treaty abuse.

India also adopted the minimum standards prescribed under dispute resolution through mutual agreement procedure (MAP) measures.

India indicated that it would not apply an article dealing with fiscally transparent entities to any of its “covered tax agreements” (treaties), and would not apply mandatory arbitration.


Read a June 2019 report [PDF 629 KB] prepared by the KPMG member firm in India

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