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India: MLI provisional list of reservations and notifications released

India has provisionally notified its treaties with 93 countries (virtually all of its comprehensive tax treaties) as covered tax agreements for the purposes of the MLI.

Rakesh DharawatHariharan Gangadharan

India joined 67 other countries in signing the Multilateral Instrument (MLI) in June 2017. India has been an active participant in the overall BEPS Project and considers several of the final BEPS measures as supporting its long-standing preference for source based taxation. It was also a member of the ad hoc group formed to develop the MLI.

India has provisionally notified its treaties with 93 countries (virtually all of its comprehensive tax treaties) as covered tax agreements for the purposes of the MLI. Similarly, many of India's important treaty partners have signed the MLI, and as such, India's treaty positions could see significant modifications in the days ahead.

Specifically, India's treaties with UK, Netherlands, Singapore and Cyprus are among those that could see incorporation of several BEPS related measures. Although Germany is a signatory to the MLI, it has not notified its treaty with India as a covered tax agreement.

Mauritius has also not signed the MLI so far, but has indicated that it will do so shortly. It remains to be seen if it chooses to apply its treaty with India, and to what extent it applies the MLI provisions relating to treaty abuse (specifically, whether it opts for the simplified limitation on benefits article).

The highlights of India's provisional list of reservations and options on the MLI are as follows:

  • Neutralising effects of hybrid mismatch arrangements:
  • India has not opted to implement changes related to the granting of treaty benefits to fiscally transparent entities; and
  • India has accepted the provision that mandates determining the residency of dual-resident entities by an agreement of the competent authorities (in place of the effective management test).
  • Preventing the granting of treaty benefits in inappropriate circumstances:
  • India has chosen to apply the simplified limitation of benefits rule. However, very few of India's treaty partners have opted for this rule, and as such this is not likely to apply to a vast majority of India's tax treaties; and
  • The principal purpose test (PPT), being a minimum standard, will apply to all of India's covered tax agreements. Coupled with the withdrawal of the capital gains exemption under India's treaties with Mauritius, Cyprus and Singapore last year, the introduction of the PPT and the domestic general anti-avoidance rule (GAAR) will significantly impact treaty access in respect of inbound investments.
  • Preventing the artificial avoidance of permanent establishment (PE) status:
  • India has opted for a wider scope of dependent agency PE and has also sought to narrow the scope of the specific activity exemption in Article 5(4). However, these provisions have not been adopted by many of India's key treaty partners, and as such, this may apply only to a small number of treaties.
  • Making dispute resolution mechanisms more effective:
  • Consistent with its earlier stance, India has not opted for mandatory binding arbitration.

India has not adopted a selective approach for applying the convention to its treaty network. Virtually all of India's comprehensive treaties are likely to be affected by the MLI, albeit in varying degrees.

Rakesh Dharawat ( and Hariharan Gangadharan (
Dhruva Advisors
Tel: +91 22 6108 1000

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