July 06, 2020

Brief on Multilateral Instrument (MLI) and position of Mauritius on MLI

Domestic tax base erosion and profit shifting (BEPS) has been identified as a problem affecting all countries in the world due to multinational enterprises exploiting unintended gaps and mismatches between different countries’ tax systems to shift profits to locations where there is little, or no overall corporate tax being paid.  To be able to solve this problem, the G20 and the Organisation for Economic Cooperation and Development (OECD) developed 15 action points to address BEPS in a comprehensive manner, and set deadlines to implement those actions, many of which cannot be tackled without amending bilateral tax treaties.


Given the number of treaties in effect across worldwide implementing these changes on a bilateral basis would take years. In this respect to be able to address the necessary hybrid mismatch arrangements, prevent treaty abuse, address artificial avoidance of permanent establishment status and improve dispute resolution, Action 15 of BEPS provides for the development of a Multilateral Instrument (MLI).


What is MLI?


The MLI is an instrument that modifies all Covered Tax Agreements in a fast and effective manner to implement BEPS treaty related measures by including two of the four BEPS minimum standards namely countering treaty abuse (Action 6) and improving dispute resolution mechanisms (Action 14) together with other measures to improve tax treaties.


It does not function in the same way as an amending protocol to a single existing tax treaty. Instead, the MLI is applied alongside existing bilateral tax treaties, modifying their application in order to implement the tax treaty-related BEPS measures.


It also enables countries to go through only one ratification procedure in their parliament in order to modify their whole treaty network rather than seek separate ratification of amendments for each bilateral tax treaty.


The MLI which is a Convention allows for different forms of flexibility through a system of reservations and notifications of choices. The MLI provides flexibility for a jurisdiction to determine which of its DTAs it would like to amend using the MLI.


The MLI will apply only to a DTA that has been specifically listed by all Contracting Jurisdictions to the DTA. Such agreements are referred to as “Covered Tax Agreements” (“CTAs”) in the MLI. A party to a CTA is referred to as a “Contracting Jurisdiction”.


Position of Mauritius on the MLI


Mauritius signed the MLI on 5 July 2017 and deposited its instrument of ratification with the Secretary General of the OECD on 18 October 2019. The MLI entered into force for Mauritius on 1 February 2020. However, the amendments to the treaties being modified by the MLI will take effect from 01 August 2020 onwards.


44 of our 46 Double Tax Avoidance Agreements (‘DTAAs’) have been listed as Covered Tax Agreements (CTAs) and Mauritius has opted for the minimum standards of the MLI relating to Treaty Abuse and Mutual Agreement Procedure. Although Arbitration is an optional article, Mauritius has signed up to Arbitration since it is investment friendly.


Investors will get the assurance that if ever a mutual agreement procedure case cannot be resolved between two Competent Authorities, there will be no deadlock since the arbitration process kicks in.


Source: Multilateral Convention to implement the Tax Treaty Related measures to prevent Base Erosion and Profit Shifting of the Mauritius Revenue Authority