Having a treaty is not the same as being entitled to use it. Since the BEPS project most treaties carry a principal purpose test through the Multilateral Instrument (MLI), and US treaties rely on limitation on benefits rules; both deny benefits to arrangements set up mainly to obtain them. Real substance in the claimed country is what supports a claim.
The MLI: how BEPS changed existing treaties
The MLI amends existing bilateral treaties without renegotiating each one. When negotiations concluded the OECD described it as covering more than 2,000 treaties. A change applies to a treaty only if both countries have the MLI in force and have listed that treaty, and only for the provisions both have chosen, so each treaty must be checked individually.
Of the eight markets, the MLI is source-checked as in force for India, the UAE, the UK and Singapore; Saudi Arabia, France and Germany are recorded as in force subject to confirmation, and the US has not signed. Tax authorities publish synthesised texts that show the treaty as modified; India's synthesised text for the UAE treaty, for example, shows the MLI preamble, principal purpose test, mutual agreement and corresponding adjustment articles applying.12345678910
The principal purpose test
The principal purpose test denies a treaty benefit where it is reasonable to conclude that obtaining it was one of the principal purposes of an arrangement, unless granting it would accord with the treaty's object and purpose. 'One of' the principal purposes is a low bar: a structure can have genuine commercial reasons and still fail if treaty access was also a main driver.
For India-UAE, the test replaced the treaty's own limitation of benefits article, with effect in India for withholding on taxable events from 1 April 2020. For the UK-Singapore treaty it applies to withholding from 1 January 2020. HMRC also applies it to contract-splitting under the construction PE rules.1112131415
Limitation on benefits in US treaties
Because the US is not an MLI party, its treaties are not modified by the principal purpose test. US treaties instead generally contain a limitation on benefits article, which grants benefits only to residents that meet objective tests. Those tests differ by treaty and should be read in the specific treaty text.916
Substance expectations
Both the principal purpose test and the residence rules look at substance: where decisions are made, who makes them, and whether the company bears real costs and risks. A holding company with no staff, nominee directors and decisions taken elsewhere is exposed on residence, beneficial ownership and the principal purpose test at the same time.
A tax residency certificate shows that the issuing country treats the company as resident; it does not by itself establish beneficial ownership or satisfy the principal purpose test.17181911
| Market | MLI in force for that market from | Research status |
|---|---|---|
| India | 1 October 2019 | Source-checked |
| United Arab Emirates | 1 September 2019 | Source-checked |
| United Kingdom | 1 October 2018 | Source-checked |
| Singapore | 1 April 2019 | Source-checked |
| Saudi Arabia | 1 May 2020 | Research draft |
| France | 1 January 2019 | Research draft |
| Germany | 1 April 2021 | Research draft |
| United States | Not a signatory | Research draft |
Decisions to make
- Is the specific treaty modified by the MLI for both countries, and from when?1314Entry into force for a country does not mean every treaty is modified, and withholding dates differ from other taxes.
- Would the structure exist if the treaty benefit were not available?11If treaty access was one of the principal purposes, the benefit can be denied.
- Does the holding company have its own decision-makers, staff and costs in the claimed country?1718Substance supports residence, beneficial ownership and the principal purpose test together.
- For US-source income, which limitation on benefits test would the recipient meet?916US treaties are not modified by the MLI and rely on their own limitation on benefits rules.
Documents usually needed
- Synthesised text of the treaty as modified by the MLI, from the relevant tax authority
- Board papers recording the commercial rationale for the holding or financing structure
- Evidence of substance: office, employees, local directors, bank accounts and audited accounts
- Tax residency certificate for the relevant period
Common mistakes
- Relying on the original treaty text without checking the MLI-modified version
- Treating a tax residency certificate as conclusive proof of treaty entitlement
- Using nominee directors while decisions are made elsewhere
- Assuming the MLI applies in the same way to every treaty a country has signed
- Ignoring the different MLI effective dates for withholding taxes and other taxes
Questions businesses ask
Is a tax residency certificate enough to get the treaty rate?
No. It shows residence, but the recipient must also be the beneficial owner and pass the principal purpose test or, for US treaties, the limitation on benefits article.20191116
What this guide does not yet confirm
These points need checking with a qualified local professional before you rely on them.
- The OECD MLI signatories and parties list could not yet be checked; Saudi Arabia, France, Germany and US status are research drafts.
- Whether the India-Singapore and India-Saudi Arabia treaties are modified by the MLI, and which provisions apply, was not confirmed; India's synthesised texts for those treaties could not yet be checked.
- The limitation on benefits articles in the US treaties with India, the UK, Germany and France could not yet be checked.
- Germany's approach of implementing MLI changes through domestic legislation, treaty by treaty, was not confirmed.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 18 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
The OECD described the MLI, when negotiations concluded, as covering more than 2,000 tax treaties, with more than 100 jurisdictions having concluded negotiations. Figures from the OECD's original MLI page, which pre-dates the June 2017 signing ceremony; current coverage is higher and was not confirmed.
Archived 2017 OECD page; use only as background.
The MLI entered into force for India on 1 October 2019. Effect on each treaty depends on both parties' MLI positions.
The MLI entered into force for the UAE on 1 September 2019. Effect on each treaty depends on both parties' MLI positions.
The MLI entered into force for the United Kingdom on 1 October 2018.
The MLI entered into force for Singapore on 1 April 2019.
Same date stated in the Australian Taxation Office synthesised text for the Australia-Singapore DTA.
The MLI entered into force for Saudi Arabia on 1 May 2020.
Date taken from the OECD MLI signatories and parties status list, which refused automated access, and the session's web search budget was exhausted. is an archived 2017 page that does not show country status. Confirm on the current OECD MLI status list.
The MLI entered into force for France on 1 January 2019.
Date taken from the OECD MLI signatories and parties status list, which refused automated access, and the session's web search budget was exhausted. is an archived 2017 page that does not show country status. Confirm on the current OECD MLI status list.
The MLI entered into force for Germany on 1 April 2021. Germany applies the MLI only to the treaties it has notified, and has indicated it may give effect to MLI changes through domestic legislation; treaty-by-treaty status not confirmed.
Date taken from the OECD MLI signatories and parties status list, which refused automated access, and the session's web search budget was exhausted. is an archived 2017 page that does not show country status. Confirm on the current OECD MLI status list.
The United States has not signed the MLI, so its treaties are not modified by it.
Date taken from the OECD MLI signatories and parties status list, which refused automated access, and the session's web search budget was exhausted. is an archived 2017 page that does not show country status. Confirm on the current OECD MLI status list.
The department's synthesised text shows MLI Articles 6 (preamble), 7 (principal purpose test), 16 (mutual agreement procedure, three-year presentation period) and 17 (corresponding adjustments) applying to the India-UAE DTAA. MLI Articles 12 and 13 (permanent establishment) are not shown as applying.
In the India-UAE DTAA, the MLI principal purpose test replaces Article 29 (Limitation of Benefits): a benefit is denied where it is reasonable to conclude that obtaining it was one of the principal purposes of an arrangement, unless granting it accords with the object and purpose of the treaty. MLI Article 7(1) as applied to the India-UAE DTAA.
A Limitation of Benefits article (Article 29) was inserted into the India-UAE DTAA by Notification SO 2001(E) dated 28 November 2007. Later replaced by the MLI principal purpose test (see tx-treaty-access-and-anti-abuse-005).
For the India-UAE DTAA, the MLI applies to withholding taxes in India where the taxable event occurs on or after 1 April 2020, and in the UAE on or after 1 January 2020. Withholding taxes only; other taxes have separate dates.
The MLI principal purpose test applies to the UK-Singapore DTA, with effect for taxes withheld at source in both states from 1 January 2020. MLI Article 7(1).
The OECD Commentary treats splitting a construction project into separate contracts to stay below the time threshold as a case where treaty benefit may be denied, and HMRC applies the principal purpose test to such arrangements. OECD Commentary Example J (22-month project split into two 11-month contracts, one with a subsidiary).
US income tax treaties generally contain a limitation on benefits article that restricts treaty benefits to qualifying residents. Tests vary by treaty; the US treaties with India, the UK, Germany and France could not yet be checked.
The IRS page was opened but does not discuss limitation on benefits; statement is from general knowledge of US treaty practice and needs confirmation against each treaty text.
Under the UK case-law test, a company is also UK resident if its central management and control is exercised in the UK, meaning the highest level of control of the business. Applies to companies not incorporated in the UK; derived from De Beers Consolidated Mines Ltd v Howe. Control may be exercised by the board or by another person, such as a parent, that has in fact assumed it.
India defines place of effective management as the place where key management and commercial decisions necessary for the conduct of the entity's business as a whole are, in substance, made; CBDT guidelines distinguish companies engaged in active business outside India. CBDT Circular No. 6 of 2017 (guiding principles for determination of POEM).
Point reflects the Income-tax Act, 1961 and its CBDT guidance. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered provisions; the corresponding 2025 Act section and any CBDT guidance re-issued under it could not yet be checked. The circular itself could not yet be checked; the circulars index is cited.
Under Article 10(2) of the India-UAE DTAA, tax in the source state on dividends paid to a beneficial owner resident in the other state may not exceed 10% of the gross amount. Applies in either direction; no MLI modification to Article 10 shown in the synthesised text.
India requires a non-resident to obtain a tax residency certificate from its country of residence to claim treaty relief, together with prescribed additional information (Form 10F under the 1961 rules). Income-tax Act, 1961 section 90(4)-(5) and rules; 2025 Act and Income-tax Rules, 2026 equivalents apply from 1 April 2026.
Point reflects the Income-tax Act, 1961 and its CBDT guidance. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered provisions; the corresponding 2025 Act section and any CBDT guidance re-issued under it could not yet be checked.
Questions on this topic
15 statements on treaty access and anti-abuse rules, 5 not yet checked against a source
