Multilateral Instrument (MLI) ratified by Dutch Parliament

The Netherlands has joined the expanding list of signatories that have ratified the Multilateral Instrument (MLI), after the Upper House (Eerste Kamer) of the Dutch Parliament approved the ratification bill on March 5, 2019. If the Netherlands deposits the ratification bill prior to April 1, 2019, the MLI will enter into effect as from January 1, 2020, for both taxes at source and other taxes. This is of course dependent on several factors, such as the question if the other signatory has deposited the Double Tax Avoidance Agreement under the scope of the MLI, and furthermore if (and when) that other signatory has also completed the ratification procedure of the MLI.

06 Mar. '19 3 min. Yoran Noij

It should also be noted that during the ratification procedure the Dutch Parliament followed the provisional list of choices it had provided, except for one amendment. The Lower House amended the ratification bill in respect of the modification of the permanent establishment (hereafter: PE) status. This amendment led to a reservation of art. 12 MLI, which targets the artificial avoidance of the PE-status through anti-commissionaire arrangements. Hereafter a summary of the background and functioning of the MLI is provided.

Background of the MLI

The MLI is the 15th OECD BEPS action plan which allows jurisdictions to swiftly implement tax treaty related measures to strengthen existing tax treaties to protect governments against tax avoidance strategies that inappropriately use tax treaties to artificially shift profits to low or no-tax location.

Due to the large number of modifications that will be required by the other Action of the BEPS project – especially taking into consideration the large number of tax treaties in force that can make this process very slow – the development of a multilateral instrument is proposed as an ‘innovative’ alternative. In short, the MLI to amend bilateral tax treaties is a promising way forward in this respect.

The MLI is built on the building of a consensus. However, as one can imagine, it will be difficult to achieve such consensus. Therefore, the MLI is designed as a flexible instrument which will modify tax treaties according to a jurisdiction’s policy preferences with respect to the implementation of the tax treaty-related BEPS measures. Although most of the MLI provisions are optional in many ways the MLI does persist several minimum standard provisions to be opted for. These minimum standards relate to the prevention of treaty abuse (BEPS action 6) and the improvement of dispute resolution (BEPS action 14). Where an MLI provision reflects

The functioning of the MLI

The MLI does not amend treaties like an amending protocol. Instead, the MLI modifies treaties by having effect alongside treaties. The provisional MLI Position of each Signatory indicates the tax treaties it intends to cover, the options it has chosen and the reservations it has made. Signatories can amend their MLI Positions until ratification. Even after ratification, Signatories can choose to opt in with respect to optional provisions or to withdraw reservations. For example, while 28 Signatories have chosen to apply the MLI arbitration provisions, additional Signatories can choose to apply those provisions later

As firstly mentioned, the first modifications to covered treaties have become effective as of the beginning of 2020. The timing of entry into effect of the modifications is linked to the completion of the ratification procedures in the jurisdictions that are parties to the covered tax treaty.

Since the provisions of the MLI merely effectuate that the current bilateral tax treaties become ‘BEPS-proof’ and moreover that Signatories amend their tax treaties on provisions to which both Signatories have opted (reached consensus), it is expected that jurisdictions will include those treaty related BEPS measures in future bilateral tax treaties. Hence, the MLI is actually a temporary (amending) multilateral instrument which paves the way for future tax treaties in a fast-moving globalized environment. The MLI will automatically cease to modify tax treaties after all covered tax agreements have been renegotiated by the Signatories.


NovioTax is a Dutch research-oriented tax consultancy firm with offices in Amsterdam and Nijmegen. Our employees are members of the Dutch Association of Tax Advisers (NOB) and the International Fiscal Association (IFA), have many years of experience and some are much sought-after guest speakers on tax policy and other topics that fall within their field of expertise. We typically serve midsized and large MNE clients, coordinate discussions with the DTA and closely cooperate with international law and tax law firms.


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Yoran Noij

Yoran is an associate and member of the Dutch Association of Tax Advisers (NOB)

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