Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting [the Multilateral Instrumnet]

  • Entry into Force Provision  [read]
  • Entry into Effect Provision [read]
  • Illustration 1: Application of the modified version of the entry-into-effect article to the India-Russia CTA, India-Singapore CTA, and the Russia-Singapore CTA [read]
  • Illustration 2: Application of the modified version of the entry into effect article to the Sweden-UK CTA [read]

 


 

 

 

Multilateral Instrument: Application of the Modified Version of the Entry-into-Effect Article

 

1. Introduction

 

Articles 35(1) to (5) of the MLI provides for the entry-into-effect provision of the MLI, with the option under article 35(7)(a) for a contracting jurisdiction to modify the entry-into-effect provision to suit the domestic law-making requirements. As of 29th Sept 2020, 12 contracting jurisdictions had chosen to apply the modified version of the entry-into-effect provision of the MLI to their CTAs. Of these 12 contracting jurisdictions, the Russian Federation was the first contracting jurisdiction that gave notification to the Depositary and 27 of its CTA partners simultaneously to put the article 35 into operation.

 

In what follows, the author examines how the choices of Russia that adopts the modified version of article 35 interact with the choices made by India and Singapore that adopt the unmodified version. The author uses synthesized texts of article 35 and the entry-into-effect provisions of CTAs of respective contracting jurisdictions to illustrate the application of article 35 to the India- Russia CTA, the India-Singapore CTA, and the Russia-Singapore CTA.

 

Pursuant to Article 39 of the Multilateral Convention to Implement Tax Treaty-Related Measure to Prevent Profit Shifting and Base Erosion (the MLI), the OECD Depositary kept and published the information of the choices of the optional provisions and reservations that contracting jurisdictions (parties to the MLI) had made, as of 29th Sept 2020. The information is given in Table 1 below:

 

Table 1 – Entry into effect positions of the 3 selected contracting jurisdictions

 

Deposit of ratification instrument

Entry into force

Entry-into-effect provision

Alternative Rules

Reservations

Article

35(1)(a)

Article

35(1)(b)

Article

35(2)

Article

35(3)

Article

35(6)

Article

35(7)(a)

India

6/25/2019

10/1/2019

 

X

X

 

 

 

Russia

6/18/2019

10/1/2019

X

 

 

X

X

X

Singapore

12/21/2018

4/1/2019

X

X

 

 

 

 

 

2. Article 34 - Entry into force

 

The Convention (the MLI) entered into force on 1st July 2018, being the first day of the month following the expiration of a period of three calendar months beginning on 22nd March 2018, when Slovenia deposited the instrument of ratification as the fifth signatory in accordance with article 34(1).

 

Thereafter, for each Signatory ratifying, accepting, or approving this Convention, the MLI entered into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by such Signatory of its instrument of ratification, acceptance or approval in accordance with Article 34(2). According to article 2(1)(d), the term “signatory” means a state or jurisdiction which has signed the MLI but for which the MLI is not yet in force.

 

As per table 1, the selected countries after signing the MLI on 7th June 2017 became the parties or contracting jurisdictions to the MLI following the ratification of the MLI on the dates indicated.

 

3. Article 35 - Entry into Effect

 

As shown in Table 1, with respect to the entry-into-effect dates, the selected contracting jurisdictions have taken alternative provisions and opt-out provisions (reservations) for the application of the entry into effect provisions to its covered tax agreements (CTAs),

  • India has chosen the alternative provision under article 35(2) for withholding taxes solely for its own application, and adopted article 35(1)(b) for other taxes. It also adopted article 35(4) which fast-tracks the entry-into-effect date for cases of mutual agreement procedure under article 16(1).
  • Russian Federation has chosen to adopt article 35(1)(a) for withholding taxes. Solely for its own application, Russia has adopted the alternative provision under article 35(3) for other taxes. It has reserved its right for article 35(4) that provides early access to MAP cases under article 16(1) not to apply in accordance with article 35(6). It has also reserved its right under article 35(7)(a) providing that it shall replace the entry-into-effect date of article 35(1), article 35(4) with the texts described in article 35(7)(a)(i) for its CTAs.
  • Singapore has adopted the unmodified versions of articles 35(1)(a), 35(1)(b), and article 35(4).

 

4. Entry into Effect – the India-Singapore CTA

 

Table 2A: The India-Singapore CTA illustrates the asymmetrical application of Article 35(1)(a) and Article 35(2) for withholding tax and the symmetrical application of Article 35(1)(b) for other taxes.

 

 

 

India

Singapore

(1)

Date of deposit of instrument of ratification

25 Jun 2019

21 Dec 2018

(2)

TA entry-into-force date

1st Oct 2019

1st Apr 2019

(3)

TA Entry into effect (unilateral)

1st Apr 2020

1st Oct 2019

(4)

CTA Entry into effect (bilateral) - WHT

Article 35(1)(a), 35(2)

Article 35(1)(a)

(5)

CTA Entry into effect (bilateral) – all other tax (non-WHT)

Article 35(1)(b)

Article 35(1)(b) 

 

4.1. Legal Texts of Articles 35(1), Article 35(2)

 

Article 35(1) is the entry-into-effect date provision. It reads as follows:

 

The Convention (the MLI) shall take effect in each contracting jurisdiction with respect to the covered tax agreement:

(a) with respect to taxes withheld at source on amounts paid or credited to non-residents (withholding tax), where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the covered tax agreement (the CTA); and

(b) with respect to all other taxes levied by that contracting jurisdiction, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of six calendar months (or a shorter period, if all contracting jurisdictions notify the Depositary that they intend to apply such shorter period) from the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA.

 

India has chosen to adopt Article 35(2) while Singapore does not. Article 35(2) is an alternative provision for Articles 35(1)(a) and (5)(a) respectively. Articles 35(2) reads as follows:

 

2. Solely for the purpose of its own application of subparagraph a) of paragraph 1 and subparagraph a) of paragraph 5, a Party may choose to substitute “taxable period” for “calendar year”, and shall notify the Depositary accordingly.

 

4.1.1. Synthesized text for withholding taxes

 

For application of article 35(1)(a) in Singapore

 

 

This provision shall have effect in Singapore with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1st January 2020.

 

 

[Note: For the application by Singapore of article 35(1)(a) to the India-Singapore CTA, “the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA” is 1st Oct 2019 [Text-A]. Therefore, the first day of the next calendar year beginning on or after Text-A in the preceding sentence is 1st Jan 2020.]

 

For application of article 35(1)(a), modified by article 35(2), in India

 

 

This provision shall have effect in India with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 April 2020.

 

 

 [Note: The taxable period for India runs from 1 April to 31 March in the following year. The first day of the next taxable period beginning on or after Text-A is 1 April 2020.]

 

The Explanatory Statement of the MLI explains that paragraph 2 of article 35 provides that a Party may choose to substitute “taxable period” for “calendar year” for the purposes of its own application of Article 35(1)(a) and (5)(a), and must notify the Depositary accordingly if they do so. This will permit Contracting Jurisdictions to choose to link the entry into effect of provisions related to withholding taxes to the taxable period, to address situations in which the taxable period does not follow the calendar year. That applies to India.

 

As noted above, the use of the word “solely” at the beginning of paragraph 2 is intended to make clear that this choice would apply asymmetrically and would apply only with respect to the application of paragraphs 1(a) and also 5(a) of article 35 by the Contracting Jurisdiction that opted for it.

 

4.1.2. Synthesized text for other taxes

 

For application of article 35(1)(b) in both India and Singapore

 

 

The provision shall have effect with respect to the CTA, with respect to other taxes levied by that contracting jurisdiction India (Singapore), for taxes levied with respect to the taxable periods beginning on or after 1st April 2020.

 

 

[Note: For article 35(1)(b), the phrase “the latest of the dates the MLI comes into force for each of the contracting jurisdiction to the CTA” [Text-A] refers to 1 Oct 2019. The taxable periods beginning on or after the expiration of a period of six calendar months (from 2019-10-1 to 2020-03-31) from Text-A are the periods beginning on and after 1st April 2020.]

 

In Singapore, the Income Tax Act provides that the year of assessment means the 12 months commencing from 1st January 1948, and each subsequent period of 12 months. The taxable period is the basis period that is a 12-month period preceding the year of assessment.

 

4.1.3. Article 35(4) – Entry into effect date for cases of mutual agreement procedure (MAP) under article 16

 

Singapore has adopted Article 16(1) without reserving its right under Article 16(5)(a). India has reserved its right under Article 16(5)(a) which provides that a taxpayer is permitted to present its MAP case to the competent authority of either contracting jurisdiction. Therefore, the alternative rule shall apply in accordance with which the taxpayer shall present its MAP case to the competent authority of the contracting jurisdiction of which he is a resident.

 

Table 2B below shows the respective position of India and Singapore on article 16(1) and article 35(4).

 

 

Article 16(5)(a) allows a contracting jurisdiction to make reservation for access to MAP to the competent authority of either contracting jurisdiction under article 16(1)

Article 35(6) allows a contracting jurisdiction to make reservation for taxpayer to have access to MAP on and after 1 Oct 2019 (the entry-into-force date) under article 35(4)

 

Article 16(5)(a)

Article 35(6)

India

Yes

No

Singapore

No

No

 

The synthesized text of Article 35(4) and the India-Singapore CTA shall read as follows:

 

“In accordance with paragraph 4 of Article 35 of the MLI, Article 16 of the MLI has effect with respect to this Convention for a case presented to the competent authority of a Contracting State of which he is a resident on or after 1 October 2019 [the entry-into-force date], except for cases that were not eligible to be presented as of that date under this Convention prior to its modification by the MLI, without regard to the taxable period to which the case relates.” [Emphasis added]

 

4.2.       Article 35(5) – Extension of list of CTAs to new tax treaties

 

As noted, India has not extended its list of CTAs to new tax treaties since the ratification date on 25th June 2019. Singapore has not added new CTAs either after it has become a party to the MLI. However, it does not follow that both India and Singapore should adopt the unmodified version article 35(5) to the new CTA. That will depend on the position of the other party of the new CTA. If the other party of a new CTA has made a reservation under article 35(7)(a), Singapore and India shall adopt the modified version of article 35(5).

 

5. Entry into Effect – the India-Russia CTA

 

Table 3A: The India-Russia CTA illustrates the asymmetrical application of Article 35(1)(a) and Article 35(2) for withholding tax and the asymmetrical application of Article 35(1)(b) and article 35(3) for other taxes

 

 

 

India

Russia

(1)

Date of deposit of instrument of ratification

25 Jun 2019

18 June 2019

(2)

TA entry-into-force date

1st Oct 2019

1st Oct 2019

(3)

TA Entry into effect (unilateral)

1st Apr 2020

1st Apr 2020

(4)

CTA Entry into effect (bilateral) - WHT

Article 35(1)(a), 35(2)

Article 35(1)(a)

(5)

CTA Entry into effect (bilateral) – all other tax (non-WHT)

Article 35(1)(b)

Article 35(1)(b), 35(3), 35(7)(a)

(6)

CTA Entry into effect date modified under 35(7)(a) and put into operation under 35(7)(b)

 

30th April 2020, as per notification given under article 35(7)(b)

 

Solely for its own application, India has chosen to adopt Article 35(2) while Russia does not. In contrast, Russia has chosen to adopt article 35(3) solely for its own application while India has not done so. Article 35(2) is an alternative provision for Articles 35(1)(a) and (5)(a) respectively, and Article 35(3) is an alternative provision for Articles 35(1)(b) and (5)(b).

 

5.1. Modification to article 35(1) and (4) by article 35(7)(a)(i); and to article 35(5) by article 35(7)(a)(ii)

 

The Russian Federation has opted for the alternative provision under article 35(3), and also reserved its right under article 35 in accordance with paragraph (7)(a) of article 35.

 

Article 35(7)(a) provides that:

 

“A Party may reserve the right to replace:

  1. the references in paragraphs 1 and 4 [of article 35] to “the latest of the dates on which this Convention enters into force for each of the Contracting Jurisdictions to the Covered Tax Agreement”; and
  2. the references in paragraph 5 [of article 35] to “the date of the communication by the Depositary of the notification of the extension of the list of agreements”;

with references to “30 days after the date of receipt by the Depositary of the latest notification by each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific Covered Tax Agreement”.

 

5.2.1. Modified texts for withholding taxes

 

Note that 1st Oct 2019 is “the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA”. [text-A]

 

As noted, India has adopted Article 35(1)(a) as modified by article 35(2). It follows that the entry-into-effect date should fall on 1st April 2020 where the event giving rise to such taxes occurs on or after 1st day of the next calendar taxable [per article 35(2)] year beginning on or after 1st October 2019 [text-A above]. In contrast, Russia has reserved its right to replace the date provided under article 35(1)(a) [text-X thereafter] with the date described under article 35(7)(a)(i) [text-Y thereafter]. In accordance with article 28(3), India shall follow the Russia’s choice to apply article 35(7)(a)(i) to the India-Russia CTA.

 

5.2.2. Modified texts for other taxes

 

The India-Russia CTA shall also be subject to the reservation made by Russia under article 35(7)(a), which replaces the entry-into-effect date under article 35(1)(b) with the date described in article 35(7)(a)(i), and that reservation provision shall apply symmetrically to both the contracting jurisdictions.

 

In addition, the entry-into-effect provision for other taxes under article 35(1)(b) shall be subject to the option chosen by Russia under article 35(3), which shall apply to Russia solely.

 

Article 35(3) reads as below:

“Solely for the purpose of its own application of subparagraph b) of paragraph 1 and subparagraph b) of paragraph 5, a Party may choose to replace the reference to “taxable periods beginning on or after the expiration of a period” with a reference to “taxable periods beginning on or after 1 January of the next year beginning on or after the expiration of a period”, and shall notify the Depositary accordingly.”

 

5.2.3. Synthesized text - article 35(7)(a)(i)

 

The synthesized text of the entry-into-effect article 35(1) of the MLI, as modified by article 35(3) and article 35(7)(a)(i), and the India-Russia CTA shall read as follows, with strikethroughs, bold texts, and emphasis added: -

 

[1.1. Withholding taxes: Article 35(1)(a) as modified by article 35(2) and article 35(7)(a) for India]

 

“The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction India with respect to the Covered Tax Agreement:

  1. with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1st April 2021.

 

In accordance with article 35(7)(b), Russia simultaneously notified the OECD Depositary and India on 30th April 2020 that it had completed the internal procedure for the entry into effect provision of the MLI. [1]

 

In accordance with article 35(7)(a), Russia reserves its right to replace text-X with text-Y, as shown below:

 

The first day of the next calendar taxable [per article 35(2)] year that begins on or after the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-X] “30 days after the date of receipt [which is 30th April 2020, per article 35(7)(b); 30 days after 30th April 2020 is 30th May 2020] by the Depositary of the notification by Russia that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the India-Russia Covered Tax Agreement” [text-Y]” is 1st April 2021.

 

[1.2. Withholding taxes: Article 35(1)(a) as modified by 35(7)(a) for Russia]

“The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction Russia with respect to the Covered Tax Agreement:

with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1st January 2021.

 

Russia reserves its right to replace text-X with text-Y in accordance with articles 35(7)(a)(i) and (a)(ii).

 

The first day of the next calendar year that begins on or after the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-X] “30 days after the date of receipt [which is 30th April 2020, per article 35(7)(b); 30 days after the receipt date is 30th May 2020] by the Depositary of the notification by Russia that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the India-Russia Covered Tax Agreement” [text-Y]” is 1st Jan 2021.

 

[2.1. Other taxes: Article 35(1)(b) as modified by article 35(7)(a) for India]

 

“The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction with respect to the Covered Tax Agreement:

  1. with respect to all other taxes levied by India, for taxes levied with respect to taxable periods beginning on or after 1st April 2021”.

 

To follow the choice by Russia, India replaces text-X with text-Y in accordance with articles 35(7)(a)(i) and (a)(ii).

 

The taxable periods beginning on or after the expiration of a period of six calendar months (from 1st June 2020 to 30th Nov 2020) from the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-X] 30 days after the date of receipt (30-4-2020; 30 days after date of receipt is 30th May 2020) by the Depositary of the latest notification by the Russian Federation making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the Agreement [text-Y] are periods beginning on or after 1st Dec 2020.

 

For India, the taxable period begins on 1st April and ends with 31st March in the following year.

 

[2.2. Other taxes: Article 35(1)(b) as modified by articles 35(3) and 35(7)(a) for Russia]

 

“The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction with respect to the Covered Tax Agreement:

“with respect to all other taxes levied by Russia, for taxes levied with respect to taxable periods beginning on or after 1st Jan 2021.”

 

On 30th April 2020, Russia gave simultaneous notification to the OECD Depositary and India that it had completed the internal procedure for the entry into effect provision of the MLI in accordance with article 35(7)(b).

 

"The taxable periods beginning on or after 1 January of the next calendar year beginning on or after [per article 35(3) for Russia] the expiration of a period of six calendar months [1st June 2020 to 30th Nov 2020] from the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] 30 days after the date of receipt [30th April 2020, per article 35(7)(b); 30 days after date of receipt is 30th May 2020] by the Depositary of the notification by Russia that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the India-Russia Covered Tax Agreement." [text-B] are periods beginning on or after 1st Dec 2020.

 

In accordance with article 35(7)(a)(i), Russia reserves its right to replace Text-A with Text-B.

 

5.3. Article 35(4) Early access to MAP

 

Reservation made by Russia

 

Article 35(4) contains a special rule under which the taxpayer can present a mutual agreement procedure (MAP) request for a case that occurs on or after the entry-into-force date. Article 35(6) provides for an opt-out provision (reservation) providing that an MLI party may choose not to apply the special rule under Article 35(4) that provides early access to a taxpayer who is eligible for an MAP request under Article 16(1). Russia has reserved its right for article 35(4) not to apply to the India-Russia CTA in accordance with article 35(6). India shall follow the choice of Russia in accordance with paragraph 3 of Article 28 - Reservation.

 

Table 3B below shows the respective position of India and Russia on article 16(1) and article 35(4).

 

Article 16(5)(a) allows India to make reservation for access to MAP to the competent authority of either contracting jurisdiction under article 16(1)

Article 35(6) allows Russia to make reservation for taxpayer to have access to MAP on and after 1 Oct 2019 (the entry-into-force date) under article 35(4)

 

Article 16(5)(a)

Article 35(6)

India

Yes

No

Russia

No

Yes

 

5.4. Article 35(5) as modified by Article 35(7)(a)(ii)

 

5.4.1. Extension of list of CTAs to new contracting jurisdictions

 

The reservation Russia has made under article 35(7)(a) shall also modify the application of the entry-into-effect provision to a new CTA resulting from an extension of list of CTAs, as defined in article 2(1)(a).

 

Article 35(5) provides that:

 

For a new Covered Tax Agreement resulting from an extension pursuant to paragraph 5 of Article 29 (Notifications) of the list of agreements notified under clause ii) of subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms), the provisions of this Convention shall have effect in each Contracting Jurisdiction:

a) with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after 30 days after the date of the communication by the Depositary of the notification of the extension of the list of agreements; [Text-A1] and

b) with respect to all other taxes levied by that Contracting Jurisdiction, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of nine calendar months (or a shorter period, if all Contracting Jurisdictions notify the Depositary that they intend to apply such shorter period) from the date of the communication by the Depositary of the notification of the extension of the list of agreements. [Text-A2]

 

5.4.2. Application of Article 35(5)(b) as modified by Article 35(3)

 

Solely for purpose of its own application, Russia adopts article 35(1)(b), as modified by article 35(3), while India adopts article 35(1)(b). Therefore, the entry-into-effect provisions shall apply asymmetrically to the new CTA with respect to other taxes.

 

5.4.3. Synthesized text

 

[a] Article 35(5)(a), as modified by article 35(7)(a)(ii) - Withholding taxes for application by Russia

 

If there is a new CTA falling under the scope of article 29(5) in future, Russia should replace the reference to [Text-A1] and [Text-A2] in article 35(5) with “the references that are described in paragraph 7(a) of Article 35” [Text-B]. The legal texts of Article 35(5)(a) as modified by Article 35(7)(a)(ii) shall read:

 

 

For a new Covered Tax Agreement resulting from an extension pursuant to paragraph 5 of Article 29 (Notifications) of the list of agreements notified under clause ii) of subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms), the provisions of this Convention shall have effect in each Contracting Jurisdiction:

a) with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after 30 days after the date of the communication by the Depositary of the notification of the extension of the list of agreements [Text-A1] 30 days after the date of receipt by the Depositary of the latest notification by Russia each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific Covered Tax Agreement Russia-[contracting jurisdiction to be inserted] CTA. [Text-B];

 

 

[b] Articles 35(5)(b), 35(3), and 35(7)(a)(ii) - Other taxes for the application by Russia

 

 

For a new Covered Tax Agreement resulting from an extension pursuant to paragraph 5 of Article 29 (Notifications) of the list of agreements notified under clause ii) of subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms), the provisions of this Convention shall have effect in each Contracting Jurisdiction:

 

b) with respect to all other taxes levied by that Contracting Jurisdiction, for taxes levied with respect to taxable periods beginning on or after the 1st day of January of the next year [as per article 35(3)] beginning on or after the expiration of a period of nine calendar months (or a shorter period, if all Contracting Jurisdictions notify the Depositary that they intend to apply such shorter period) from the date of the communication by the Depositary of the notification of the extension of the list of agreements [Text-A2] 30 days after the date of receipt by the Depositary of the latest notification by Russia each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific Covered Tax Agreement the Russia-[to be inserted] CTA. [Text-B].

 

 

5.4.4. Article 35(5) – new CTA for India

 

The application of article 35(5) for India is cannot be determined at this stage. It all depends on whether the other party to the CTA is a party that has adopted the modified version of article 35(5) in accordance with article 35(7)(a).

 

As of 30 Sept 2020, the following contracting jurisdictions have indicated that they reserve the right for article 35(1), (4) and (5) not to apply to their CTAs. The contracting jurisdictions that adopt the modified versions and have ratified their positions are: Indonesia, Russia, Sweden, and Switzerland; the contracting jurisdictions that has not ratified their positions are: Andorra, Estonia, Germany, Hong Kong (China), Italy, Kenya, Romania, and Spain.

 

As of 30 Sept 2020, India had not given the Depositary the notification as mentioned in the preceding paragraph because it has not extended its list of CTAs in accordance with article 29(5), after becoming a Party to the MLI. It is noted that India has not included Andorra on the list of CTAs. If India includes Andorra into the list of CTAs in future, then India has to adopt the modified version of the entry into effect provision.

 

As a related matter, Japan was the first contracting jurisdiction that gave notification of extending its CTA list to Qatar, in accordance with article 29(5). The notification of this extension of the list of agreements was received and communicated by the Depositary on 14 February 2020. However, article 35(7)(a) shall not apply because both Japan and Qatar do not make a reservation under article 35(7)(a) that modifies: article 35(1), article 35(4) and article 35(5).

 

5.4.5. Comparing the modification by articles 35(2), 35(3) and 35(7)(a) between articles 35(1) for pre-existing CTAs and 35(5) for new CTAs

 

From the Russia perspective, the following summarizes the logical relations between articles 35(1), 35(2), 35(3), and 35(7)(a), and that between articles 35(5), 35(2), 35(3), and 35(7)(a), as applied to the India-Russia CTA. See Table 4 below:

 

List of CTAs upon deposit of the Instrument of Ratification

New CTA added after the deposit of Instrument of Ratification

 

Article 35(1)(a)

Withholding taxes

Article 35(1)(b)

Other taxes

Article 35(5)(a)

Withholding taxes

Article 35(5)(b)

Other taxes

Can Article 35(2) modify it?

No, not chosen

 

No, not chosen

 

Can Article 35(3) modify it?

 

Yes, chosen

 

Yes, chosen

Reservation made under article 35(7)(a)(i) and (ii)?

Yes. Both Article 35(1) (and also 35(4)) will be subject to modification by article 35(7)(a)(i)

Yes. Article 35(5) will be subject to modification by article 35(7)(a)(ii)

 

6. Entry into Effect – the Russia-Singapore CTA

 

Table 4A: The Russia-Singapore CTA is an example showing the symmetrical application of article 35(1)(a) for withholding taxes and the asymmetrical application of article 35(1)(b), as modified by article 35(3) for sole application by Russia, for other taxes.

 

 

Singapore

Russia

(1)

Date of deposit of instrument of ratification

21st Dec 2018

18 June 2019

(2)

TA entry-into-force date

1st April 2019

1st Oct 2019

(3)

TA Entry into effect (unilateral)

1st Oct 2019

1st Apr 2020

(4)

CTA Entry into effect (bilateral) - WHT

Article 35(1)(a)

Article 35(1)(a)

(5)

CTA Entry into effect (bilateral) – all other tax (non-WHT)

Article 35(1)(b)

Article 35(1)(b), 35(3), 35(7)(a)

(6)

CTA Entry into effect date modified under 35(7)(a) and put into operation under 35(7)(b)

 

30th April 2020, as per notification given under article 35(7)(b)

         

 

6.1. Modified version of article 35(1)(a)

 

Singapore has adopted the unmodified version of article 35(1), but Russia has reserved its right to adopt the modified version of article 35(1). Therefore, the modified version of article 35(1)(a) for withholding taxes shall apply to the Singapore-Russia CTA.

 

6.2. Withholding Taxes - Article 35(1)(a) as modified by 35(7)(a) for both Singapore and Russia

 

"The provisions of this Convention (article 35) shall have effect in Singapore (Russia) with respect to the Covered Tax Agreement:

with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1st January 2021. [note 1]

 

Note1: The first day of the next calendar year that begins on or after the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] “30 days after the date of receipt [which is 30th April 2020, per article 35(7)(b); 30 days after the date of receipt is 30th May 2020] by the Depositary of the notification by Russia that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the India-Russia Covered Tax Agreement” [text-B]” is 1st Jan 2021.

 

In accordance with article 35(7)(a)(i), Russia reserves its right to replace Text-A with Text-B.

 

In accordance with article 35(7)(b), Russia gave simultaneous notification to the OECD Depositary and Singapore that it had completed the internal procedure for the entry into effect provision of the MLI on 30th Apr 2020.

 

6.3.1. Other taxes - Article 35(1)(b) as modified by article 35(7)(a) for Singapore

 

"The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction with respect to the Covered Tax Agreement:

with respect to all other taxes levied by Singapore, for taxes levied with respect to taxable periods beginning on or after 30th Nov 2020.”

 

In Singapore, the taxable period is the basis period that is a 12-month period preceding the year of assessment.

 

"The taxable periods beginning on or after the expiration of a period of six calendar months [1st June 2020 to 30th Nov 2020] from the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] 30 days after the date of receipt [30th April 2020, per article 35(7)(b); 30 days after the date of receipt is 30th May 2020] by the Depositary of the notification by Russia that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the India-Russia Covered Tax Agreement" [text-B] are the periods beginning on or after 30th Nov 2020.

 

6.3.2. Other taxes - Article 35(1)(b) as modified by articles 35(3) and 35(7)(a) for Russia

 

"The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction with respect to the Covered Tax Agreement:

with respect to all other taxes levied by Russia, for taxes levied with respect to taxable periods beginning on or after 1st Jan 2021.”

 

"The taxable periods beginning on or after 1 January of the next calendar year beginning on or after [per article 35(3)] the expiration of a period of six calendar months [1st June 2020 to 30th Nov 2020] from the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] 30 days after the date of receipt [30th April 2020, per article 35(7)(b); 30 days after the date of receipt is 30th May 2020)] by the Depositary of the notification by Russia that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the India-Russia Covered Tax Agreement." [text-B] are the periods beginning on or after 1st Jan 2021.

 

In accordance with article 35(7)(a)(i), Russia reserves its right to replace Text-A with Text-B.

 

Article 35(3) shall apply solely to Russia.

 

6.4 Article 35(4) – Early access to MAP by taxpayer

 

Russia reserves its right for article 35(4) that provides early access to MAP request by the taxpayer not to apply in accordance with article 35(6). Singapore shall follow the choice by Russia in accordance with article 28(3).

 

Table 4B below shows the respective position of Russia and Singapore on article 16(1) and article 35(4).

 

 

Article 16(5)(a)

Article 35(6)

 

Article 16(5)(a) allows a contracting jurisdiction to make reservation for access to MAP to the competent authority of either contracting jurisdiction under article 16(1)

Article 35(6) allows Russia to make reservation for taxpayer to have access to MAP on 1 Oct 2019 (the entry-into-force date) under article 35(4)

Singapore

No

No

Russia

No

Yes

 

6.5 Article 35(5) – New CTAs

 

For the application by Singapore of article 35(5) for new CTAs, it also depends on whether the other party to the new CTA is one of the contracting jurisdictions that adopt the modified version of the entry-into-effect provision in accordance with article 35(7)(a). As noted, Andorra and Kenya adopt the modified version and both of them have not been added to the CTA list of Singapore. If Singapore later adds Andorra or Kenya to the list of CTAs, then Singapore shall adopt the modified version of article 35(5).

 

Dr. Alfred Chan

China Tax & Investment Consultants Ltd

www.china-tax.net

27th Oct 2020

 


 

 

 

Illustration 2: Application of the modified version of article 35 to the Sweden-UK CTA

 

For application in Sweden

For application in the United Kingdom

(1) The provisions of this Convention (Article 35) shall have effect in each Contracting Jurisdiction with respect to a Covered Tax Agreement:

Explanation: Article 35(1)(a) and (7)(a) apply by replacing text-A with text-B:

(a) with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] 30 days after the date of receipt by the Depositary of the latest notification by Sweden * that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific Covered Tax Agreement [text-B];

Explanation: Some of the texts of Article 35(1)(b) [text-A], as unilaterally modified by article 35(3), shall be replaced by the texts described under 35(7)(a) [text-B]. Shorter period in article 35(1) would not apply either.

Explanation: Some of the texts of Article 35(1)(b) [text-A] shall be replaced by the texts described under 35(7)(a) [text-B]. Shorter period in article 35(1) would not apply either.

(b) with respect to all other taxes levied by Sweden, for taxes levied with respect to taxable periods beginning on or after 1 January of the next calendar year beginning on or after the expiration of a period of six calendar months from the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] 30 days after the date of receipt by the Depositary of the notification by Sweden * that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to the Sweden-United Kingdom CTA. [text-B]

(b) with respect to all other taxes levied by the United Kingdom, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of six calendar months from the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA [text-A] 30 days after the date of receipt by the Depositary of the latest notification by Sweden * that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to the Sweden-United Kingdom CTA. [text-B]

 

 

* Sweden is the Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect)