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Multilateral Instrument (MLI) Ratification

There is no doubt that in 2021 the two major topics overwhelming the international tax community are the Base Erosion and Profit Shifting (“BEPS”) and the multilateral convention to implement tax treaty-related measures to prevent BEPS (“MLI”).

In Brief, the MLI allows its signatories to efficiently update their covered tax treaties to incorporate said measures without the need for renegotiating every single treaty.

Egypt was one of the first countries to sign the MLI on 7th June 2017 and has deposited the instrument of ratification on the 30th September 2020.

Egypt has determined 55 tax agreements be covered by the MLI provisions, the MLI position of the two countries (treaty parties) must match for MLI to modify their bilateral tax treaty.
The MLI impact might be significant on the current structure of businesses, especially with the introduction of the Principle Purpose Test (“PPT”).

The treaty benefit can be denied should the tax administration find it reasonable to conclude that obtaining the benefit was, in itself, one of the principal purposes of any arrangement or transaction.

Businesses must be aware of the changes and must review their current structure and assess the potential impact on their business, obtain an estimation of the related exposure and apply the needed adjustments.

We hope that this document will shed some light on the topic in a simple manner, and also give some insight on how we can help in this regard.

MLI Impact Assessment



Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately. BEPS practices cost countries USD 100-240 billion in lost revenue annually.

Inclusive Framework On BEPS

Working together within OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on the implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.


MLI allows its signatories to implement the tax treaty measures developed through the BEPS project in existing bilateral tax treaties in a synchronized and efficient manner.

What it is all About

The measures introduced by the MLI are meant to prevent treaty abuse, improve dispute resolution, prevent the artificial avoidance of permanent establishment statues, and neutralize the affect of hybrid mismatch arrangements.

Entry Into Force

The MLI modifications to covered tax treaties shall enter into force three months after the deposit of ratification instruments with the secretariat of the OECD, depending on the position of the other treaty party.

MLI Milestone – Egypt

Multilateral-Instrument-Ratification MLI-Impact Tax Agreements - Tax firm in Egypt
  • The MLI has entered into force three months after Egypt has deposited its instrument of ratification with the OECD Secretariat on 30th September 2020
  • For WHT, the MLI provisions will become applicable on or after the first day of the next calendar year, beginning on or after the latest of the dates on which MLI enters into force for each party to the CTA (e.g. 1st of January 2021).
  • For other taxes, the MLI provisions will become applicable for taxes levied with respect to the taxable period beginning on or after the expiry of six calendar month, calculated from the latest of the dates on which MLI enters into force for the treaty partners (e.g. 1st of July 2021).

Key Impact on Covered Tax Agreements – Egypt position

Preventing tax treaty abuse (Minimum standard)

Amended Preamble / Principle Purpose Test (“PPT”)

  • Egypt has chosen to adopt provisions for the purpose of the prevention of treaty abuse, introducing the Principle Purpose Test (“PPT”), by applying such principle, the treaty benefit might be denied should the tax administration find it reasonable to conclude that obtaining the treaty benefit was one of the principal purposes for any arrangements or transactions.
Counter artificial avoidance of PE

Broader PE Definition

  • Counters the artificial avoidance of PE through commissionaire arrangements and similar strategies / expanding dependent agent scope.
  • Counters the artificial avoidance of PE through specific activity exemptions if such activities are not of a preparatory/ auxiliary nature.
  • Introducing the anti-fragmentation rule / defining the person closely related to Enterprise.
Improving dispute resolution (Minimum Standard)

Mutual Agreement Procedures

  • The mutual agreement procedures provided that any person who considered that the action taking by a contracting state would result in taxation not in accordance to treaty provisions, such person may present his case to the competent authority of either contracting states.
  • The competent authority shall endeavor to reach a suitable solution for the case with the competent authority of the other state.

How Can We Help

MLI Impact Assessment
  • Analyze the MLI position adopted by Egypt and its treaty partners to identify the covered tax agreements in use.
  • Review the current business structure and latest transactions applied to analyze the initially expected impact of PPT.
  • Address the impacted areas and their related expected exposure.
MLI impact management
  • Review current holding, financing and licensing structure.
  • Review Intercompany Agreements.
  • Process substance test and Identify weaknesses in more details.
  • Advise on restructuring the business model where required to mitigate the MLI impact.
  • Advise on the required tax payments (if any).
  • Advise on the documentation of economic substance proves where needed.
  • Advise on the needed reporting (if required).
  • Advise on the need for drafting any rulings to be communicated with the tax authority’s research department where needed.

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