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U.K. Releases First Wave of Consolidated Tax Treaties Impacted by MLI

Robert Sledz  

· 5 minute read

Robert Sledz  

· 5 minute read

On October 11, 2018, the U.K. tax authorities (HMRC) published the consolidated texts of its income tax treaties with Serbia and Slovenia that are impacted by the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). This represents the first wave of consolidated treaties that HMRC intends to release.

HMRC has previously announced that it intends to release consolidated texts of its bilateral income tax treaties to determine how the MLI will affect each one in accordance with the MLI positions taken by the U.K. and the Covered Tax Agreement (CTA) jurisdiction.

Editor’s Note: as of October 11, 2018, the following U.K. tax treaties are affected by the MLI, based on the deposit of ratification instruments by its CTA partner jurisdictions with the OECD:

  • 2003 Income Tax Treaty with Australia.
  • 2006 Income Tax Treaty with Japan.
  • 2001 Income Tax Treaty with Lithuania.
  • 1983 Income Tax Treaty with New Zealand.
  • 2006 Income Tax Treaty with Poland.
  • 1981 Income Tax Treaty with the former Yugoslavia, for Serbia.
  • 2007 Income Tax Treaty with Slovenia.
  • 2015 Income Tax Treaty with Sweden.


On June 7, 2017, the U.K. signed the MLI with 67 other jurisdictions at the first OECD signing ceremony in Paris. The U.K. listed 121 tax treaties as CTAs, which will be modified by the MLI once the U.K. and the corresponding CTA partners ratify the MLI under their domestic laws.

On April 16, 2018, HMRC published amendments to the U.K.’s provisional list of MLI reservations and notifications. The U.K.’s amended position reflected income tax treaties that were omitted in error (i.e., Faroe Islands) or signed after June 7, 2017 (i.e., Kyrgyzstan, Ukraine, and United Arab Emirates). It also reflected that the U.K. and Germany will implement certain BEPS recommendations in separate agreements outside the MLI.

On May 23, 2018, the U.K. Double Taxation Relief (Base Erosion and Profit Shifting) Order 2018 received Royal Assent, implementing the MLI into U.K. domestic law. See also the Explanatory Memorandum.

On June 29, 2018, the OECD announced that the U.K. deposited its instrument of ratification to implement the MLI into domestic law. The MLI entered into force in the U.K. on October 1, 2018.

The MLI will modify the application of double tax treaties currently in force with the U.K. These treaties will only be modified if both the U.K. 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 the U.K. 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).

MLI Notifications and Reservations

The U.K. 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.

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

  • Article 12 of MLI (Commissionaire Arrangements and Similar Strategies): reserved – will not apply to all CTAs.
  • Article 13 of MLI (Specific Activity Exemptions): listed CTAs that already contain these clauses.
  • Article 14 of MLI (Splitting-Up of Contracts): reserved – will not apply to all CTAs.

Mandatory Binding Arbitration (BEPS Action 14):

  • Part VI of MLI (Articles 18-21): opted-in to apply.
  • Type of arbitration selected: not identified.
  • Excluded tax types from arbitration: not identified.

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