UK and International Tax news

OECD Announces Further Progress In Addressing Harmful Tax Practices

Thursday 7th March 2019

The OECD has released a new publication:  Harmful Tax Practices – 2018 Progress Report On Preferential Regimes, which contains the latest results in respect of jurisdictions’ continuing commitment to comply with the standard on harmful tax practices, particularly in relation to  preferential regimes aligning taxation with substance.

BEPS Action 5 is one of the four BEPS minimum standards which all Inclusive Framework members have committed to implement. One part of the Action 5 minimum standard relates to preferential tax regimes where a peer review is undertaken to identify features of such regimes that can facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other jurisdictions.

The latest progress report is an update to the 2015 BEPS Action 5 report and the 2017 Progress Report. It contains the results of the review of all BEPS Inclusive Framework members’ preferential tax regimes that have been identified since the BEPS Project. The results are reported as at January 2019.

In addition, the Inclusive Framework has agreed on a new standard for substantial activities requirements for no or only nominal tax jurisdictions. The report includes the details of this new standard and the other work on additions to and revisions of the harmful tax practices framework. It also contains details of the next steps for the work on harmful tax practices.

The assessment process is part of the ongoing implementation of Action 5, with assessments undertaken by the Forum on Harmful Tax Practices (FHTP), comprising of the more than 120 member jurisdictions of the Inclusive Framework. Action 5 revamps the work on harmful tax practices with a focus on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for preferential regimes, such as IP regimes.

The latest batch of assessments has yielded new conclusions on 57 regimes, including:

  • 44 regimes where jurisdictions have delivered on their commitment to make legislative changes to abolish or amend the regime (Antigua and Barbuda, Barbados, Belize, Botswana, Costa Rica, Curaçao, France, Jordan, Macau (China), Malaysia, Panama, Saint Lucia, Saint Vincent and the Grenadines, the Seychelles, Spain, Thailand and Uruguay).
  • All IP regimes that were identified in the Action 5 report are now “not harmful” and consistent with the nexus approach following recent legislative change passed by France and Spain.
  • Three new or replacement regimes were found “not harmful” and have been specifically designed to meet the Action 5 standard (Barbados, Curacao and Panama).
  • Four other regimes that have been found to be out of scope, not yet operational (Malaysia, Seychelles and two regimes of Thailand), and two further commitments were given to make legislative changes to abolish or amend a regime (Malaysia and Trinidad & Tobago).
  • One regime found to be potentially harmful but not actually harmful (Montserrat).
  • Three regimes found to be potentially harmful (Thailand).

 

The FHTP has reviewed 255 regimes since the start of the BEPS Project and the cumulative picture of the Action 5 regime review process is as follows:

Harmful – 2

Potentially harmful – 5

Potentially harmful but not actually harmful – 6

Not operational – 5

Under review – 28

In the process of being eliminated/amended – 14

Not harmful(amended0 – 47

Abolished – 63

Out of scope (amended) – 4

Out of scope – 23

Disadvantaged areas – 3

Not harmful – 55

The report also delivers on the Action 5 mandate for considering revisions or additions to the FHTP framework, including updating the criteria and guidance used in assessing preferential regimes and the resumption of application of the substantial activities factor to no or only nominal tax jurisdictions. The report concludes in setting out the next key steps for the FHTP in continuing to address harmful tax practices.

 

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.

 

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