USISPF and KPMG Webinar on Multilateral Instruments (MLI)

On March 31, USISPF and KPMG co-hosted a webinar on the Multilateral Instrument which will enter into force for India on April 1, 2020. The Multilateral Instrument (MLI) was ratified in 2017 as a result of OECD’s BEPS initiative to modify tax treaties and tackle tax avoidance. Although the U.S. is not a signatory to the MLI, U.S. multinationals investing in India through intermediary jurisdictions may be impacted by the new rules.

Himanshu Parekh and Naveen Gupta from KPMG provided insights on the challenges presented by the new rules for the applicability of tax treaties under MLI, and ways that businesses can respond to these challenges. They highlighted the impact of General Anti-Avoidance Rules (GAAR) and the Principle Purpose Test (PPT) on tax authorities’ ability to invalidate the receipt of tax treaty benefits on non-applicable transactions, and outlined the MLI’s new rules on the avoidance of permanent establishment (PE) status, regarding the independence of agents, preparatory and auxiliary testing, and artificial contract splitting.

In responding to the challenges of this new framework, Parekh and Gupta advised companies to be proactive in performing impact analysis for their company, preparing documentation on cross-border investments, and exploring alternative remedies.