Upcoming Changes to Mongolian Double Tax Treaties Effective from 2025

Mongolia • No. 08/2024 • November 2024

In brief

Upcoming Changes to Mongolian Double Tax Treaties (DTTs)
The Multilateral Convention to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting, commonly known as the Multilateral Instrument (MLI), is a dynamic tool designed to modify existing tax treaties in line with a jurisdiction's policy preferences for implementing BEPS measures. The MLI, developed by the Organisation for Economic Co-operation and Development (OECD), aims to address issues such as hybrid mismatches, treaty abuse, artificial avoidance of permanent establishment (PE) status, and the resolution of international tax disputes.

Mongolia's Implementation of the MLI
Mongolia has taken significant steps towards implementing the MLI by including all its effective DTTs as Covered Tax Agreements (CTAs). However, it is important to note that some of Mongolia's DTT partners have either not joined the MLI or have not listed the Mongolian DTT as a CTA in their MLIs. As a result, it is anticipated that 19 of Mongolia's DTTs will be modified under the MLI starting from 2025.

Implications for Taxpayers
The adoption of the MLI will significantly impact the application of DTTs. Specifically, the benefits of DTTs will not be applicable if, considering all relevant facts and circumstances, obtaining the DTT benefit was one of the principal purposes of any arrangement or transaction. Therefore, taxpayers should review their international operational, financial, and holding structures, arrangements, and transactions in advance to prepare for the introduction of these new rules.