In 2013, G20 and the Organisation for Economic Co-operation and Development (“OECD”) launched the Base Erosion and Profit Shifting (“BEPS”) Project, a global initiative aimed at preventing tax avoidance.

As a result, in November 2016, more than a hundred jurisdictions closed the negotiations on the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument,” “MLI,” or “the Convention”). The Multilateral Instrument introduces a series of changes to international tax rules in the context of bilateral tax treaties. Overall, the MLI seeks to:

  • Combat tax avoidance and treaty abuse
  • Improve international tax dispute resolution
  • Set uniform minimum standards across jurisdictions
  • Ensure regulatory flexibility in the area of eliminating double taxation where needed
  • The combined effect of the MLI’s provisions will radically transform the implementation of thousands of extant bilateral tax treaties worldwide.

As of 23 January 2020, 41 countries have implemented MLI. These include 29 of Cyprus’s double tax treaty partners: Austria, Belgium, Canada, Denmark, Finland, France, Georgia, Guernsey, India, Ireland, Jersey, Latvia, Lithuania, Luxembourg, Malta, Mauritius, Norway, Poland, Russia, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, Sweden, Switzerland, Ukraine, United Arab Emirates, and the United Kingdom.


The Ratification Process

On 22 January 2020, Cyprus’s Official Gazette published, in both Greek and English, the Instrument of Ratification of the Multilateral Convention to Implement Tax Treaty Related Matters to Prevent Base Erosion and Profit Shifting. The Gazette also featured an Exploratory Statement and the MLI Cyprus Position. The publication of these documents finalized the national ratification process by Cyprus.

On 23 January 2020, Cyprus formally deposited the above documents with the Secretariat of the OECD. The date of deposit is the same as the date of receipt by the OECD.

Entry into Force

As per Article 34 of the Convention, it shall enter into force on the first day of the month following the three months following the deposit of the ratification documents. In Cyprus, the Convention enters into force on 1 May 2020.

The provisions regarding taxes withheld at source shall enter into force on the first day of the following calendar year. For Cyprus, that day is 1 January 2021.

What Are the Changes Introduced by the MLI?

Cyprus approved the incorporation into national legislation of the following MLI provisions:

  • Action 6 (Purpose of Covered Tax Agreement)
  • Action 7 (Treaty Abuse)
  • Action 14 (Making Dispute Resolution Mechanisms More Effective)

These provisions apply to all of Cyprus’s existing bilateral double tax treaties, provided that the Contracting States have also ratified the Convention. That ensures the country’s compliance with the minimum international standards as per the MLI. The only exception is cases where minimum standards were already agreed on a bilateral basis.