On June 7th 2017, 68 states have signed the multi-lateral Treaty (MLI). Among those countries were Israel and Switzerland.
As signatories to the MLI both states have taken on the duty to have the treaty ratified in their parliaments.
On September 13th, 2018 Israel has deposited to the OECD its instrument of ratification.
Almost two years after signing the MLI Switzerland has ratified the treaty and on the 22nd of March 2019 submitted its Instrument of ratification document to the OECD.
It is important to remember that the MLI is a tool for a crosswise amendment of double tax treaties (DTT’s).
The MLI aims to change drastically most of the signatories DTT’s by adding among others regulations in such matters as, see through entities, transfer prices between related parties, mutual agreement procedures in tax treaties etc.
From a perception point of view one can say that the main goal of the MLI which began with the BESP project  was to change the mind set which led for the forgetting that the purpose of the double tax treaty was in order to prevent just that and not to lead to events where the treaties are being wrongfully abused for the purpose of tax reduction or even completely avoiding it.
From a technicality point of view any amendment made will be considered as effective upon both sides to the treaty have deposited the ratification document of the MLI and the specific period of time has passed (every article in the MLI has a different period for application).
Every country which has signed the MLI and had it ratified and deposited has the right to deposit alongside with the instrument its reservations.
The first article in the OECD standard document of which the countries are depositing includes the list of all countries to which the depositor wishes to have the MLI apply to. The MLI shall apply only in a case whereby both parties to the treaty have stated that they wish to apply it to themselves.
Israel & Switzerland
On the 2nd of July 2003 Israel and Switzerland have signed a double tax treaty and had it retroactively applied back to 1st of January 2002 based on the OECD model treaty. As mentioned above both countries have signed, ratified and submitted their MLI to the OECD and yet although both are signatories to the MLI and are adjoined with a double tax treaty which is applicable for over 17 years both countries have not opted for having their tax treaty to be amended accordingly.
 Base Erosion Profit Shifting – An OECD initiative which was adopted by over 125 countries with the hope of changing the perception in regards to the true meaning of double tax treat.
Action 15 spoke in details about the need for a tool such as the MLI.
It should be noted that Israel has submitted a list of 53 countries of which she has a tax treaty with which it would like to amend with accordance to the MLI apart from three countries, United Kingdom, Germany and…. Switzerland.
From the Swiss side, although having a wide range of double tax treaties with around 90 countries Switzerland has submitted its ratified instrument and had it related to the following countries: Argentina, Austria, Chile, the Czech Republic, Iceland, Italy, Lithuania, Luxembourg, Mexico, Portugal, South Africa and Turkey. No Israel.
The fact that both Switzerland and Israel did not wish to apply the MLI on their DTT is due to the fact that a new treaty is under negotiation between the countries and therefore awaits the result of the negotiation.
Every signatory country to the MLI has the right upon submitting of its ratification to have its reservation in regards to the MLI and its application. It should be noted that whereas Israel does have several reservations, Switzerland has plenty and the fact that it had opted to have the MLI applied to only a small selected amount of countries will prove to have little effect to the MLI on Switzerland and its signatory partners.
Israel has ratified and submitted its instrument alongside several reservations:
- The elimination of double taxation in tax treaties:
According to the OECD model treaty which is the base for most of Israel DTT’s there are two systems to avoid double taxation
- Credit – the country which is not the source country shall provide a tax credit towards the tax which was paid in the source country.
- Exemption – whereby the non-source country shall provide a tax exemption for the income.
The MLI has presented three ways in order to avoid a situation whereby an entity or an individual achieves a double non taxation .
Swiss approach compares to Israel – unlike Switzerland Israel has decided not to apply any of the options given by the MLI due to the fact that under Israel’s internal tax legislation any income which was made by an Israeli resident abroad is taxable in Israel (unless stated otherwise via a double tax treaty), and as part of the double tax treaties Israel is a part to, it applies the credit system. Switzerland on the other hand although as well as Israel decided not to apply the rule given by the MLI did so from a different reason mainly since it applies the exemption system in its internal tax legislation. It should also be noted that Switzerland unlike Israel does not impose CFC  regulations.
 The source country is the country where the income was generated.
 Double non taxation is a situation whereby no tax is levied either at source country or at the non-source country, a situation which the MLI is trying to solve.
 CFC – Controlled foreign corporation, Israel Introduced the concept in its tax legislation article 75b to the tax ordinance.
2. Mandatory binding arbitration process:
In a nutshell, when a request based on the mutual agreement procedure is submitted and the certified authorities of both countries have not been able to reach any agreement for over two years after the last material has been presented the applicant has the right to resolve to arbitration, as it stands today both Switzerland and Israel has reserved from this article.
3. Dividend Transfer transactions:
Israel has decided to object to the entirety of article 8 to the MLI in regards to all of its DTT’s.
As abovementioned both Israel and Switzerland are in pre negotiation for a new and amended DTT which most likely be affected by the MLI in all considerations to its warding however its clear it this present that both countries are tending to keep their taxation rights as have been done so until today either by the DTT’s or by the reservations of the MLI which allowed them to maintain control over the tax base as it was. The difference which one could claim between the two countries is that whereas Switzerland is trying to use the MLI as a tool to remain aligned with the rest of the OECD and the signatories the MLI is an important step for Switzerland in its path whereas Israel is using the MLI in order to increase its abilities to collect true tax from its tax residents individual or corporate which is in line with its joining the previous treaties such as the AOEI and others.