Implementation of the MLI across the Middle East and status update

Over the last couple of months we have seen further developments regarding the implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) across the Middle East (ME). Recent developments include:

Bahrain: On 5 October 2020, Bahrain's Cabinet authorized the signature of the MLI;

Jordan: deposited its instrument of ratification for the MLI on 29 September 2020 which will enter into force on 1 January 2021; and,

Oman: deposited its instrument of ratification for the MLI on 7 July 2020 which will thus enter into force on 1 November 2020.

In summary, the current status of the MLI in the ME is as follows:



  Signed MLI   

    Ratified MLI   

     Entry into force


To be signed























Saudi Arabia










The MLI is designed to implement swiftly the tax treaty-related measures arising from the G20/ Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.

Due to the nature of the MLI as a global instrument, the measures provided for in the MLI will modify, i.e. complement or replace the corresponding provisions in the bilateral Double Tax Treaties (DTTs) of the signatories to the MLI, i.e. there is no need to re-negotiate the bilateral DTTs. The signatories do have some leeway to opt in/out for certain measures (referred to as countries’ “MLI Positions”). However, there are minimum measures that need to be adopted, notably in the area of treaty abuse and Mutual Agreement Procedure (MAP) which are explained further below.

Treaty abuse/Principal Purpose Test (PPT)

Under the PPT rule, treaty benefits would be denied where one of the principal purposes of a particular arrangement is to secure a benefit under the treaty. “Benefits” in this context include in principle any benefits provided for under the treaty such as a reduction in or exemption from source taxation (e.g. dividends, interest and royalties), Permanent Establishment (PE) exemption and capital gains tax protection.

The new measure is likely to be most relevant to foreign multinationals doing business in or with any of the MLI countries. The PPT is not easy to apply and it remains to be seen how it will operate in practice. However, it will be even more important that any arrangement is inextricably linked to a core commercial activity. Taxpayers may wish to consider revisiting and reviewing existing investment structures to determine whether and to what extent the newly-introduced anti-treaty shopping rules may impact those structures.

Mutual Agreement Procedure (MAP)

The changes adopted should allow taxpayers to address efficiently disputes in relation to the application of treaty provisions. Where the competent authorities fail to resolve the dispute, the dispute can be escalated via a formal procedure, and an agreement reached and implemented, irrespective of any time limits.

As a result of this we have already seen a number of countries in the ME providing local guidance on the process of initiating MAPs (e.g. Saudi Arabia, Qatar and Bahrain). These are very welcome development for multinational businesses, particularly in the context of transfer pricing.

Other changes (non-minimum standards)

As mentioned above, a particular country may adopt further changes that go beyond the minimum measures. An important area is the new rules regarding the PE rules which have been adopted by Saudi Arabia.

Impact of the MLI

As the MLI modifies provisions of existing tax treaties, it will be relevant in situations where taxpayers/businesses make use of or rely/benefit from tax treaties and benefits. The extent of modification of an existing tax treaty will depend on the MLI positions taken by the contracting states which would have to be explored on a treaty-by-treaty basis. We suggest that businesses monitor the status of the MLI implementation and review the impact on tax treaties applied in existing structures and future arrangements.

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