Alerts:

Tax Alert: Multilateral Instrument notified by India

16 August 2019

Multilateral Convention (MLI or multilateral Instrument) is not only a multi-country instrument but is a milestone in the anti-Base Erosion and Profit Shifting (BEPS) journey of the Organisation for Economic Co-operation and Development (OECD). Recognising the importance of ensuring that profits are taxed where substantive economic activities generating the profits are carried out, the object of MLI is to address the issue of tax avoidance through aggressive international tax planning that has the effect of artificially shifting profits to countries where they are subject to non-taxation or reduced taxation. MLI is aimed at bringing necessary changes in the Double Taxation Avoidance Agreement (‘DTAA’ or ‘tax treaty’) without re-negotiating or amending the network of existing tax treaties. MLIs once effective are likely to bring change to provisions and interpretation of the concepts of permanent establishment, anti-abuse provisions, tax credit system, etc.

India, being an active member of the BEPS project, was part of the first set of 68 countries who signed the MLI in June 2017. On 9 August, 2019, the Finance Ministry of the Government of India notified[1] the MLI. With this India joins the likes of Australia, Netherlands, Singapore, UK who have notified the MLI. Once the MLI enters into effect, it is likely that 93 of India’s tax treaties could undergo a change

Once the MLI comes into effect, the Tax Treaties need to be read alongwith the MLI provisions. Hence, the existing tax treaties that India has entered into will undergo a change once the counterpart countries have notified India as a party to its MLI and would need to be looked with new sets of lenses.

Key Indian Tax Treaties – When do they get effective

Treaty With

1. MLI deposit to OECD

2. Entry into Force (EOF)

First day of the month following: Col 1 + 3 months

3. Entry into Effect (EIF)

i. Withholding Taxes:

First day of the calendar year (taxable period for India) on or after the later of the EOF

ii. Other Taxes:

From taxable Periods beginning on or after 6 months from the later of the EOF

Australia

26 September,2018

01 January,2019

01 January,2020

01 July,2020

Netherlands

29 March,2019

01 July,2019

01 January,2020

01 January,2021

Singapore

21 December,2018

01 April,2019

01 January,2020

01 January,2021

United Kingdom

29 June,2018

01 October,2018

01 January,2020

01 January,2021

 


[1] Notification No. 57/2019/F. No. 500/71/2015-FTD-I dated August 9,2019.