Multilateral Instrument (MLI)

Tax treaties and the impact of the MLI – Synthesised texts

Although not obligated to do so under the MLI, South Africa opted for the development of synthesised texts to the MLI. These texts, which are essentially consolidated versions of the Covered Tax Agreements as modified by the MLI, are aimed at facilitating the understanding of the application of the MLI to a particular tax treaty. However, it should be noted that a synthesised text does not constitute a source of law. The authentic legal texts of the tax treaty and the MLI take precedence and remain the legal texts applicable.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting has been approved by Parliament in terms of section 231(2) of the Constitution of the Republic of South Africa, 1996, for implementation on 1 January 2023.

A synthesised text represents the following in a single document:

• The text of the Covered Tax Agreement that is modified by the MLI, including the text of amending protocols (where relevant).
• The provisions of the MLI that have an effect on the tax treaty as a result of the interaction of the MLI positions of the jurisdictions, and
• The dates on which the provisions of the MLI take effect for the specific Covered Tax Agreement.

The table below represents the agreements listed by South Africa under its MLI Position that may be modified by the MLI. The synthesised texts for each Covered Tax Agreement are drafted in consultation with the relevant treaty partners but are non-binding, as noted above. These texts may be accessed via the highlighted links in the table below.

Please note that this table will be updated on an ongoing basis, once a treaty partner has; signed the MLI, deposited its Instrument of Ratification, Acceptance or Approval of the MLI and consultations have been concluded on the synthesised text.  

* Date of entry into effect depending on completion of internal procedures in partner jurisdiction.

Overview of the MLI

Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. In order to address BEPS, jurisdictions worked together and through the OECD/G20 BEPS Project, jointly developed 15 Actions to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment. However, the timely implementation of this comprehensive BEPS package was required. In this regard, Action 15 of the BEPS Action Plan mandated the development of a multilateral instrument to streamline the implementation of the tax treaty-related measures to tackle BEPS. Please click on the link below for additional information in this regard.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, also known as the Multilateral Instrument (MLI), helps fight against BEPS by implementing the tax treaty related measures in existing bilateral tax treaties in a swift, synchronised and efficient manner. These measures will prevent treaty abuse, improve dispute resolution, prevent the artificial avoidance of permanent establishment status and neutralise the effects of hybrid mismatch arrangements.

The text of the MLI and its Explanatory Statement can be accessed via the following link:

• https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-beps.htm

The MLI already covers 100 jurisdictions and entered into force on 1 July 2018. It started to take effect with respect to covered tax agreements of jurisdictions that ratified it. South Africa deposited its Instrument of Ratification with the OECD Depository on 30 September 2022. The MLI entered into force for South Africa on 1 January 2023.

Signatories and Parties that joined the MLI identified which of their existing tax treaties they wish to modify via the MLI and which of its provisions they wish to implement. Their choices (made through notifications and reservations) are reflected in their “MLI Position”.

South Africa’s MLI Position upon Deposit of the Instrument of Ratification, Acceptance or Approval (MLI Position) can be access via the following link:

• http://www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf.

Once a tax treaty has been listed by its two treaty partners, it becomes an agreement covered by the MLI or a “Covered Tax Agreement”. The effects of the MLI on a specific covered agreement are drawn from the “matching” of its partners’ choices or MLI Positions. In the event that only one jurisdiction (or neither jurisdiction) identifies a tax treaty as a Covered Tax Agreement, the provisions of that tax treaty will remain unchanged.

South Africa listed 76 tax treaties under its MLI Position. Please refer to the media statement issued by National Treasury on 30 November 2022, available via the following link:

• National Treasury – Media Statement BEPS.

At present, 50 of the 76 jurisdictions listed by South Africa have ratified the MLI. Accordingly, these tax treaties will meet the treaty related BEPS measures without the need for renegotiation.

Additional information

For additional information on BEPS, Action 15 and the MLI please click on the following links:

• Base erosion and profit shifting – OECD BEPS
• Action 15 – OECD BEPS
• Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS – OECD
• Toolkit for Application of the Multilateral Instrument for BEPS Tax Treaty Related Measures – OECD
• Opinions of the Conference of the Parties to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting – OECD