MLI stands for “Multilateral Instrument,” which is The Multilateral Convention developed by the Organisation for Economic Co-operation and Development (OECD) to implement measures to prevent base erosion and profit shifting (BEPS) in international tax.
The MLI allows countries to quickly modify their existing bilateral tax treaties to incorporate the measures developed under the BEPS project, without the need for lengthy and complex renegotiations of each individual treaty. The MLI contains provisions related to the prevention of treaty abuse, mutual agreement procedures, and dispute resolution mechanisms.
The MLI has been signed by over 100 countries and jurisdictions, including Indonesia, and is intended to provide a more coherent and consistent international tax framework. The implementation of the MLI is expected to reduce opportunities for tax avoidance and improve tax certainty for businesses operating across borders.
In Indonesia, the MLI has been incorporated into the domestic law through Presidential Regulation No. 91 of 2020. The implementation of the MLI provisions in Indonesia will depend on the specific provisions of the existing tax treaties and the reservations made by each participating country.
Indonesia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) in June 2017 and deposited its instrument of ratification in September 2019.
Under the MLI, Indonesia has agreed to implement measures to prevent base erosion and profit shifting in its existing tax treaties with other participating jurisdictions. These measures include the minimum standards on treaty abuse, permanent establishment, and mutual agreement procedures, as well as optional provisions on other BEPS issues.
The MLI provisions will apply to Indonesian tax treaties only to the extent that both treaty partners have ratified the MLI and listed the particular tax treaty as a Covered Tax Agreement (CTA). As of April 2023, Indonesia has listed 68 tax treaties as CTAs under the MLI.
It is important to note that the implementation of the MLI provisions in Indonesia may have implications for the taxation of cross-border transactions and investments. Therefore, taxpayers should carefully review the MLI provisions and their impact on their specific circumstances, and seek professional advice as necessary.