Tax Alert: MLI

Alert, Oct. 30, 2019


On 12 February 2019, the Dutch House of Representatives passed the bill for adoption of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (hereinafter: ‘MLI’). The MLI aims to swiftly implement the recommendations of the OECD Base Erosion and Profit Shifting (hereinafter: ‘BEPS’) action plan in existing tax treaties. The MLI was signed on 7 June 2017. On the same date, the Netherlands submitted a list of 82 tax treaties that the Netherlands would like to designate as Covered Tax Agreements (hereinafter: ‘CTAs’), i.e., tax treaties to be amended through the MLI.

Coverage of the MLI

Countries are offered flexibility regarding the application of the substantive provisions of the MLI and the method of application. This flexibility consists in that countries have, where appropriate, choices in the measures to be applied. The following categories of provisions in the MLI can be distinguished: (i) minimum standards, (ii) options (opt-in) and (iii) reservations (opt-out).

Compulsory components are, among other things, the minimum standards that must be laid down in tax treaties, i.e. the Principal Purpose Test (hereinafter: ‘PPT’), the preamble of tax treaties that, in short, must provide that one of the objectives of a tax treaty covered by the MLI the prevention of double exemption or a reduction of tax due to tax avoidance and evasion (including treaty shopping techniques) and the mutual agreement procedure. If countries have different approaches to comply with a minimum standard, for example, the Netherlands opts for the PPT and another country opts for the PPT in combination with the simplified Limitation On Benefit provision (hereinafter: ‘LOB provision’), they must pursue a mutually acceptable solution that still meets the minimum standard. The latter under the assumption that they cannot agree to an asymmetrical application.

The other substantive provisions of the MLI are non-mandatory measures (no minimum standards), such as the prescribed mutual agreement procedure to resolve a dual fiscal domicile of companies for the purposes of a tax treaty. With regard to the non-compulsory components, a country has the freedom to include them or not, or, where appropriate, to include a part of them with the help of reservations and opt-in provisions.

MLI provisions

Certain key provisions from the MLI are presented hereunder. Please note that more provisions may apply depending on the CTA and possible reservations therein.




This article prevents treaty benefits from being granted where hybrid mismatches have resulted from entities that one or both countries treat as wholly or partly transparent for tax purposes and limits double tax relief


Replaces effective management tie-breaker with competent authority agreement


As a BEPS minimum standard,  countries must include one of the following measures in their tax treaties: (i) a PPT, (ii) a PPT together with a simplified LOB test or (iii) an extensive LOB together with an anti-conduit provision. The Netherlands solely applies the PPT.


Concerns counteracting constructions to abuse the lower participation rate under the dividend article of tax treaties.


Introduces a 365 day period for testing whether an entity directly or indirectly derived its value principally from immovable property (i.e. apply test continuously throughout the year) and sets out that gains derived from the alienation of shares in an entity may be taxed in the country where these shares derive more than a certain part of their value from immovable property.


Aims to prevent a threshold period specified in a tax treaty for the adoption of a vi (under Article 5 (3) OECD Model Convention) from being circumvented by splitting up contracts between closely related companies.


Option to include mandatory binding arbitration.

Impact Dutch CTAs

The MLI will have effect for those bilateral tax treaties that are listed by both participating countries, after ratification of the MLI under their respective domestic rules and procedures. The date on which the MLI applies to a specific tax treaty depends on the two countries involved and when they will adopt the MLI. A number of things stand out with regard to the positions that are known so far (and which may still be provisional in other countries). The Netherlands has brought relatively many, being 82 tax treaties, within the scope of the MLI; nine treaties have been left out because they are currently being renegotiated (namely the treaties with Belgium, Brazil, Bulgaria, Denmark, Ireland, Ukraine, Poland, Spain and Switzerland). The MLI was implemented into Dutch national law and entered into force on March 16, 2019. Consequently, the MLI applies to the Netherlands since July 1, 2019.

With regard to the aforementioned provisions, matches among Dutch CTAs are as follows:




Argentina, Armenia, Australia, Israel, Luxembourg, Malaysia, Mexico, New Zealand, Nigeria, Norway, Romania, the Russian Federation, Slovakia, South Africa and Turkey


Argentina, Armenia, Australia, Canada, China, Egypt, India, Indonesia, Israel, Japan, Kazakhstan, New Zealand, Nigeria, Norway, Romania, the Russian Federation, Slovakia, Slovenia, South Africa and the UK


All treaty partners of the Netherlands who have signed the MLI or are party to it opt to apply the PPT. Of the treaties that are not classified as Covered Tax agreement, an amendment protocol has been agreed with the Ukraine and Denmark, which includes the PPT. In addition, a PPT has been agreed with Uzbekistan, Ghana, and Algeria.


Albania, Argentina, Armenia, China, Egypt, France, Germany, Israel, Kazakhstan, Mexico, Norway, Romania, the Russian Federation, Slovakia, Slovenia, South Africa and Tunisia.


Albania, Armenia, Australia, Argentina, Australia, Canada, China, France, Germany, India, Japan, Kazakhstan, Mexico and Slovenia.


Argentina, Armenia, Australia, Egypt, India, Indonesia, Israel, Kazakhstan, Kuwait, New Zealand, Nigeria, Norway, Romania, the Russian Federation, Saudi Arabia, Slovakia and Tunisia.

18 et seq.

Australia, Canada, Finland, France, Greece, Italy, Luxembourg, Malta, New Zealand, Portugal, Singapore and Slovenia.


Coming up ahead

The earliest MLI provisions on CTAs with a match will enter into effect for the Netherlands as of  January 1, 2020. Consequently, it is advisable to check up on the possible impact of the MLI on your enterprise.

If you have questions on how the MLI will affect your business, please do not hesitate to contact us.

Richard Smeding –

Gerwin de Wilde –


October 29, 2019