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Israel Deposits MLI Ratification Instrument with OECD

Robert Sledz  

· 5 minute read

Robert Sledz  

· 5 minute read

On September 13, 2018, the OECD announced that Israel deposited its instrument of ratification to implement the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) into Israeli domestic law. The MLI will enter into force in Israel on January 1, 2019.

Editor’s Note: The MLI entered into force in certain jurisdictions on July 1, 2018, following the deposit by Slovenia of its instrument of ratification with the OECD on March 22, 2018, the fifth state to do so.


On June 7, 2017, Israel signed the MLI with 67 other jurisdictions at the first OECD signing ceremony in Paris. Israel listed 56 tax treaties as Covered Tax Agreements (CTAs), which will be modified by the MLI once Israel and the corresponding CTA partners ratify the MLI under their domestic laws.

The MLI will modify the application of double tax treaties currently in force with Israel These treaties will only be modified if both Israel and the other jurisdiction give notice that they wish them to be CTAs (and have ratified the MLI under their domestic laws). Notice can be given at the time of signature, ratification, or at a later date. Where Israel has listed a double tax treaty to be a CTA, and either the other jurisdiction has not made the same notification, or is not a signatory to the MLI, then the MLI will not modify that treaty until the other jurisdiction either makes an equivalent notification, or signs and ratifies the MLI and makes a notification.

CTAs are modified only to the extent of the provisions contained in the articles of the MLI. Most of these articles permit a jurisdiction to reserve against making the modification that it contains, or to make a reservation to preserve certain existing provisions in the CTAs. Where either signatory to a CTA reserves against a provision contained in the MLI, then the modification will not apply to that CTA.

The MLI enables all parties to meet the treaty-related minimum standards that were agreed as part of the BEPS package under Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) and Action 14 (Making Dispute Resolution Mechanisms More Effective). The MLI also enables parties to implement recommendations for changes to tax treaties contained in the reports on Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements) and Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status).

Israel has listed the following notifications and reservations with the OECD, among others:

Preventing Treaty Abuse (BEPS Action 6):

  • Article 7 of MLI: principal purposes test (PPT) selected. Under the PPT, if one of the principal purposes of transactions or arrangements is to obtain treaty benefits, these benefits would be denied, unless it is established that granting these benefits would be in accordance with the object and purpose of the treaty. Also listed tax treaties with Armenia, Azerbaijan, the Czech Republic, Denmark, Georgia, Germany, Hungary, India, Ireland, Macedonia, Malta, Panama, Russia, Taiwan, and Vietnam as already containing PPT provisions.

Permanent Establishment (PE) Avoidance (BEPS Action 7):

  • Article 12 of MLI (Commissionaire Arrangements and Similar Strategies): listed all 56 CTAs as already containing measures in Articles 12(3)(a) of MLI.
  • Article 13 of MLI (Specific Activity Exemptions): selected Option A (Article 13(2) of MLI), which would subject specific activity exemptions to an overarching preparatory or auxiliary condition.
  • Article 14 of MLI (Splitting-Up of Contracts): listed Irish treaty as already containing measures in Article 14(2) of MLI, which prevent manipulation of a PE time limit relating to construction sites.

Mandatory Binding Arbitration (BEPS Action 14):

  • Part VI of MLI: reserved on opting-in.
  • Type of arbitration selected: N/A.
  • Excluded tax types from arbitration: N/A.

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