Follow Us :

Cabinet approves ratification of MLI. What is the significance of ratification of MLI? 

Government of India through a press release on 12th June, 2019  has brought out the information of ‘Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting‘. In this article, Author will provide a brief introduction of Multilateral Convention (MLI) and will highlight from when same is to be referred and what an Indian Resident who makes the payments to Non-Residents needs to know and from where.


Multilateral Instruments (MLI) was signed by various countries to amend their respective DTAA. Generally treaties have been a bilateral agreement but to bring into effect the requirements of BEPS Action Plans related to amendment in Treaties, OECD in BEPS Action Plan 15 suggested signing of MLI which is multilateral agreement resulting into modification of various bilateral instruments.

It is pertinent to note that although MLI is signed by various countries but each country had certain reservations and in certain cases they were given with option to choose. A bilateral instrument will be modified only to the extent for a particular clause in MLI wherein both the jurisdictions have agreed to the same. Thus MLI which will come into effect for India and UK for example may vary from MLI which come into effect for India and Japan. Further MLI will directly not replace existing DTAA provisions but is to be referred along with a DTAA. Thus in MLI regime until both the jurisdictions modify their respective Bilateral Agreement, if someone wants to apply DTAA provisions of India and Japan then they need to refer three documents now Bilateral Agreements, MLI ratified by India and MLI ratified by Japan. Thereafter have to figure out what is common between MLI ratified by India and MLI ratified by Japan.

Applicability of MLI:-  

Author also wants to highlight that mere ratification by India does not mean that MLI has become effective for all bilateral agreements India has with other jurisdictions. Below are steps to check application of MLI in respect to bilateral agreement of India with other jurisdictions:-

Step 1:- Entry into force for MLI:- MLI instruments itself becomes active once five jurisdictions deposit the instrument of ratification. As of now more than 5 jurisdictions have submitted their instrument for ratification, thus this step is cleared;

Step 2:- Entry into force of MLI for a specific jurisdiction:- For each signatory ratifying, accepting, or approving the MLI after the deposit of the fifth instrument of ratification, acceptance or approval, the MLI will enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by such Signatory of its instrument of ratification, acceptance or approval.

It is pertinent to note that in case MLI enters into force for India, it does not mean all Bilateral Agreements of India are affected.

Step 3:- Entry into force for a specific Bilateral Agreement:- For the provisions of the MLI to have effect with respect to a CTA (Covered Tax Agreement), it is necessary that both parties of the CTA have to deposit their instrument of ratification, approval or acceptance of the MLI with the OECD.

Step 4:- Applicability of MLI to which extent:- Even if MLI comes into effect for a Covered Tax Agreement lets take example of India and Japan, it does not mean that MLI ratified by either India or Japan becomes directly applicable. A further analysis is required as the MLI contains a number of alternatives or optional provisions that generally will apply only if all Contracting Jurisdictions to a CTA affirmatively choose to apply a particular alternative or option.

Step 5:- Applicability of MLI with respect to taxes withheld at source:-  

MLI provisions to have effect from the 1st day of the next calendar year from the date:-

  • Date of Entry into Force (Step 2) for 1st contracting jurisdiction;
  • Date of Entry into Force (Step 2) for 2nd contracting jurisdiction;

Whichever is latter

Author wants to highlight here that although term Calendar Year was used by OECD but India has chosen to replace “taxable period” for “calendar year” thus entry into force for withholding tax implications will vary for Indian Residents and Other Country Residents.

Let’s take an example that date of Step 2 for India is 1st December, 2019 and date of Step 2 for Singapore is 1st March, 2020 then in such case Residents of India making payment to Residents of Singapore needs to refer to MLI provisions for event occurring on or after 1st March, 2020 for the purpose of withholding tax implications. However since Singapore has proceeded with the term “Calendar Year” residents of Singapore need to refer to MLI provisions for events occurring on or after 1st January, 2021. This means that MLI for India – Japan Covered Tax Agreement enters into force for withholding taxes on 1st January, 2021 for Singapore residents while for India Residents making payment to Singapore residents the date is 1st April, 2020.

Step 6:- Applicability of MLI for other cases:- 

MLI provisions to have effect from 1st day of the next taxable year begining on or after an expiry of 6 calendar months from:-

  • Date of Entry into Force (Step 2) for 1st contracting jurisdiction;
  • Date of Entry into Force (Step 2) for 2nd contracting jurisdiction

Whichever is later

Step 6 provides the date from which Income Tax Authorities can refer to provisions of MLI. Continuing with above example, Indian Tax Authorities can apply provisions of MLI on CTA of India and Singapore only from 1st April, 2021 as 6 months from the latest date on which MLI enters into force for India & Singapore is 1st October, 2019.

Emphasis on Withholding Tax Compliances:-

Indian Residents making payment to Non-Residents needs to closely monitor developments related to ratifications of MLI by different parties since India has now submitted Instrument of Ratification on 7th June, 2019 thus MLI enters into force for India from 1st October, 2019. Thus from 1st April, 2020 it becomes necessary to analyze provisions of MLI for those countries for whom Entry into force is on 1st March, 2020. Process for the analysis should begin on 1st January, 2020 as for all the countries which have submitted instruments for Ratification by the said date and of whom DTAA, India has included as CTA and those countries have also included DTAA with India as CTA; MLI needs to be referred by Indian Residents from 1st April, 2020. Latest status for date of Deposit of Ratification and other details can be seen on the link “”. As on 29th May, 2019, 26 jurisdictions which includes Australia, France, Japan, Singapore, UAE & UK had already submitted their Instrument for Ratification. Thus one needs to be updated not only with the text of DTAA with these countries but also to update oneself with MLI ratified by India and these countries.

Author Bio

Author is a CA Final Rank holder (AIR 34 – Nov’15) and Diploma Holder in International Taxation (ICAI) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( ) or his Linkedin acco View Full Profile

My Published Posts

CbCR- Advanced Analysis CBCR: Why Such Reporting, By Whom, When, What Are the Difficulties and Benefits For TDS, Employee Now Have An Option to Opt For Lower Regime, But Is It Worth? DDT Abolition & TDS on dividend to Non-Resident Investors House Property Remained Vacant – Check Out How to Calculate Your Income Tax Liability View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
May 2024