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Tax & Legal

Multilateral Convention to Implement Tax Treaty

Thailand signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI)

Early this year, Thailand has signed and deposited its instrument of ratification of the MLI which now covers over 1800 bilateral tax treaties. This is a strong commitment to prevent the abuse of tax treaties and base erosion and profit shifting (BEPS) by MNEs. The convention will enter into force from 1 July 2022.  

MLI is a tool developed by OECD to combat the problems relating to hybrid mismatches, treaty abuse, avoidance of PE and mutual agreement procedures. MLI offers concrete solutions for governments to close the gaps in existing international tax rules. It consists of 7 parts and 39 articles. However, Thailand chooses to apply the following provisions:



Part 2 Hybrid Mismatches

Article 5

Amend the elimination of double tax provision by changing the method for elimination of double tax from tax exemption to tax credit for prevent non-taxation in both countries.

Part 3 Treaty Abuse

Article 6

Amend the context on the name and preamble to prevent misuse of DTA and prevent the non-taxation for both countries.

Article 7

Add new provision so-called Principal Purpose Test (PPT) to deny tax benefits if one of the principal purpose is to obtain the tax benefits under the treaty

Part 4 Avoidance of Permanent Establishment Status

Article 12

Amend Permanent Establishment (PE) provision to have a measure for preventing the avoidance of PE status through Commissionaire Arrangements and Similar Strategies.

Article 13

Amend the PE provision by specifying the activities exempted from being considered as PE and stipulating the measure for considering the distribution of work between related company that may be deemed as the avoidance of PE status.  

Article 14

Amend PE provision to have a measure for preventing the splitting of the agreement for related company to avoid the period condition of PE.

Article 15

Amend PE provision by adding the definition of related company to avoid the PE status.

Part 5 Improving Dispute Resolution

Article 16-17

Amend the wording on mutual agreement procedure provision and the related company provision pursuant to the wording specified in OECD Model Tax Convention (2017).

Thailand’s position for MLI will cover 58 tax treaties except Netherlands, Norway, and Chinese Taipei which we assume that Thailand will re-negotiate and revise the tax treaty with each country separately.

Our view

MLI could impact tax structure of all MNEs doing business in Thailand. It is recommended to revisit your tax structure. We can help you navigate MLI and understand what it means to your business and structure.