Cyprus Ratifies the Multilateral Convention

Cyprus Ratifies the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”).

On 22/01/2020 it was published in the official gazette of the Republic of Cyprus the ratification instrument for MLI, including the MLI, the list of reservations and notifications of Cyprus (“MLI position”) at the time of signature. The effective date of application of MLI is the 01/05/2020 and for the provisions in relation to the taxes withheld at source is 01/01/2021.

MLI was developed as part of the OECD BEPS project in order to swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises. MLI has been currently signed by 93 countries and will be used as a single document that will update the double tax agreement between the countries. Important to note that for a double tax treaty, the MLI articles to apply, need:

a) both countries to have signed the MLI and

b) both countries to have adopted the same articles/provisions.

Therefore, care should be taken on the interpretation of how the MLI affects countries and treaties. The OECD has developed a matching database where interested parties can seek for matching double tax treaties/countries and articles: (

For updated information on which countries have signed the MLI and status of ratification please refer to:

Cyprus has opted to apply the minimum standards of MLI. The minimum standards relate to:

  1. the minimum standard for treaty abuse (BEPS Action 6), Article 7 of the MLI which states that a benefit under a double tax treaty will not be granted in respect of an item of income or capital if its reasonably to conclude, having regard to all relevant facts and circumstances, that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that the benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the double tax treaty. This is the so-called Principal Purpose Test (PPT).
  2. the minimum standard for dispute resolution (BEPS Action 14), Articles 16 – Mutual Agreement Procedure and Article 17 – Corresponding Adjustments, of the MLI which aim is to improve dispute resolution for cases presented from tax payers in any competent authorities of the contracting states seeking remedies in case of taxation not in accordance with the relevant double tax treaty (Article 16) and for providing by a contracting state a corresponding adjustment (downward) to reflect a transfer pricing adjustment in the other contracting state (Article 17).

Cyprus tax resident companies, being part of international groups (i.e. as holding/financing cos etc) receiving income from abroad, should examine the impact of the MLI into the double tax treaties with the source countries and take the necessary measures to ensure that the will not be negatively affected by the PPT clause, as described above. The relevant provisions of the MLI regarding withholding taxes apply from 01/01/2021 onwards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Our tax specialists are at your disposal should you require any further information or clarifications and for further advice on the subject matter.