United Arab Emirate (UAE) this year September 1st, 2019 ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (hereinafter referred as “MLI”). MLIs are invention of Organization of Economic Development (OECD) plus G-20 Base Erosion and Profit Shifting (hereinafter referred as “BEPS”) Action Plan launched in 2013 with provisions/measures that governments around the world who are signatory to MLIs must implement tax regime to make effective the concept of BEPS in practice. The BEPS mentions 15 point of actions out of which four are basic minimum standards that are mandatory for all the member nations including UAE have to be complied:
- Action 5 related to harmful tax practices;
- Action 6 related to prevention of tax treaty abuses;
- Action 13 related to Country-by-Country Reporting;
- Action 14 related to Mutual Agreement Procedures.
UAE signed MLU in June of 2018 and ratified the same on May 29th, 2019. The date of enforcement mentioned in Official Gazette for MLI to come into effect is September 1st, 2019.
Till today, the UAE has signed treaties with
- Finland,
- France,
- Ireland,
- Japan,
- Lithuania,
- Luxembourg,
- Malta,
- the Netherlands,
- New Zealand,
- Poland
- Serbia
- Singapore
- Slovenia and
- the United Kingdom
- Belgium
- India
- Russia.
UAE has MLI provisions in the tax treaties which allows the other parties to opt out of their effect. But, the minimum standards as laid down in BEPS Framework has to be adhered by the member nations. These mandatory provisions include:
- Article 6 of MLI; adoption of new preamble in the tax treaties which mention that treaty should not create opportunities for non-taxation or minimise tax through evasion or avoidance.
- Article 7 of MLI; the treaty should not be miscreant in promoting tax evasion and to redress the situation through inclusion of clauses such as Limitation of Benefit or Principle Purpose Test.
- Article 16 of MLI that’s lays down effective dispute resolution clause which allows taxpayers recourse to Mutual Agreement Procedure (MAP).
UAE has published its reservations and notifications to the MLI confirming the application of the BEPS minimum standards only. Hence, the profound effect of MLI on UAE Tax Treaties would be confined to these provisions.
The decision of the UAE government in bringing into effect the provisions of the OECD-G-20 Framework and thereby raising the status of UAE as reliable, transparent and accountable business and investment destination.
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