29 January 2020

24 double tax treaties were amended with respect to Multilateral Instrument, do you know how?

Ratification of Multilateral Instrument started an update process of majority double tax treaties that Slovakia has concluded. 24 double tax treaties have already been amended. The changes relate to treaty abuse, hybrid mismatches, permanent establishment and tax disputes resolution.

Marianna Dávidová


Multilateral instrument (MLI) is an important part of BEPS initiative that enables effective and quick implementation of selected BEPS actions into individual double tax treaties.

In order to maintain legal certainty, the Slovak Ministry of foreign and European affairs issues individual announcements with changes of the respective double tax treaties.

So far 24 double tax treaties were amended with respect to MLI:

Contractual country Effective date
Australia 1.1.2019
Belgium 1.10.2019
Denmark 1.1.2020
Finland 1.12.2019
France 1.1.2019
Georgia 1.1.2020
Netherlands 1.7.2019
India 1.1.2020
Island 1.1.2020
Israel 1.1.2019
Ireland 1.11.2019
Japan 1.1.2019
Canada 1.12.2019
Lithuania 1.1.2019
Latvia 1.8.2020
Luxembourg 1.1.2020
Malta 1.10.2019
Poland 1.1.2019
Austria 1.1.2019
Singapore 1.10.2019
Slovenia 1.1.2019
Great Britain 1.1.2019
Serbia 1.1.2019
Ukraine 1.12.2019


MLI adjusts double tax treaties mainly in the following areas:

  • Hybrid mismatches
  • Treaty abuse
  • Artificial avoidance of permanent establishment
  • Mechanism of tax disputes resolution

For illustration purposes please see below selected provisions that amend the Double Tax Treaty concluded with Netherlands (Treaty).

In relation to the minimum standard the principal purpose test was added to the Treaty and the preamble of the Treaty was also amended. The contractual parties agreed that the double tax treaty will be interpreted in a way that it prevents from the double taxation without creating the opportunities for non-taxation via frauds or treaty shopping.

Permanent establishment provisions were amended and the MLI provisions limiting specific activity exemptions and anti-fragmentation rule were added.

Based on the amended wording of the Treaty, the specific activities (e.g. maintenance of stocks of goods for storage, display, delivery or processing) will not constitute a permanent establishment only under the assumption that these activities are preparatory or auxiliary in relation to business as a whole. Anti-fragmentation rule has also been introduced to prevent the breakup of an operating business into several small business units in order to benefit from the preparatory or auxiliary exemption. The amended wording of the Treaty changes also the conditions for construction permanent establishment. In order to prevent splitting up contracts artificially into shorter periods the new provision allows for combining the activities of related enterprises carried out at one construction site during different periods of time, each exceeding 30 days when considering the time test of 12 months.

Amended Treaty contains also the mutual agreement procedure. The dispute must be presented within three years as of the first notification of taxation that is not in accordance with the provisions of the Treaty.

Do not hesitate to contact us should you apply double tax treaties in the course of your business and you are not sure about the changes resulting from their amended wording.


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