Here you will find relevant information on the Multilateral Convention, an update to international tax treaties to aid cross-border trade and investments. As of 1 January 2023, the MLI was enforced in Bulgaria, and is one of the most innovative and radical developments in tax treaties in recent decades.

What is the The Multilateral Convention (MLI) and How Does it Work?

The MLI serves to implement the Base Erosion and Profit Shifting (BEPS) action plan in the double tax treaties (DTAs) of participating countries. The objective of BEPS is to ensure that profits are taxed where value creation and economic activity take place, by applying tax treaty measures to update international tax laws. The MLI provides an organised process to help countries amend their bilateral tax treaties to implement the measures developed under the BEPS project. Reduce double taxation, tax evasion and tax avoidance by modifying the application of several bilateral tax treaties.

An extremely innovative element of the BEPS Project, the MLI enables measures against treaty shopping, artificial avoidance of permanent establishment status, and hybrid asymmetries, as well as improvements to the dispute resolution mechanism, to be included in existing bilateral tax treaties relatively quickly.

More than 100 jurisdictions have joined the BEPS MLI to date, covering approximately 2,000 bilateral tax treaties. The MLI has the following parts:

• Part I – Scope and interpretation of terms (Articles 1 and 2) ;
• Part II – Hybrid Mismatches (Articles 3 to 5);
• Part III – Abuse of Agreement (sections 6 to 11);
• Part IV – Avoiding Permanent Establishment Status (Articles 12-15);
• Part V – Improving Dispute Resolution (sections 16 and 17);
• Part VI – Arbitration (Articles 18 to 26);
• Part VII – Final Provisions (sections 27 to 39)

The Benefits and Potential Challenges With Implementing the Multilateral Convention?

In Bulgaria and other countries who have signed the MLI, the implementation will help to reduce tax avoidance and profit shifting, as well as improve transparency in international taxation. Companies should keep themselves informed of the progress of entry and the consequences of the MLI in countries in which they operate. They also need to understand and follow the changes to over 2,000 tax treaties. As a result, businesses can be more confident when making decisions about expanding into foreign markets.

Implementing the MLI on BEPS can be a complex process, with potential challenges. It is important for companies to have a thorough understanding of the multilateral convention process if they are to successfully implement it. The convention is designed to reduce the administrative burden for taxpayers, however, successful implementation of the MLI can be tricky. It is essential that all parties comply with the provisions of the agreement, understanding how it affects existing tax treaties, and ensuring effective implementation of BEPS measures. By addressing these challenges, businesses will be able to realise the full benefits of this multilateral convention and ensure improved tax compliance.

Conclusion

The Multilateral Instrument (MLI) is part of the OECD’s BEPS project. To-date 100 jurisdictions have signed the MLI, it thus represents one of the most significant changes in the history of cross-border tax law. The MLI affects corporate structures, transactions and in some cases even business models themselves. Businesses need to track closely when the MLI goes into effect in the countries in which they operate. We at TGS Bulgaria can support you with our deep expertise and our global network. In addition, our tax advice focuses on the individual circumstances of your company. In this way, we provide optimal support with the early integration of the new legal framework and help you to reduce the effects on your core business. Contact us here!