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OECD's Action 5 BEPS Work Producing 'Tangible Results'

by Ulrika Lomas,, Brussels

18 October 2017

Countries have made substantial progress in ensuring that their preferential tax regimes do not give rise to base erosion and profit shifting (BEPS) issues, according to the OECD's new peer review report under Action 5 of the BEPS Action Plan.

The BEPS Action 5 standard covers tax incentives – preferential tax regimes – that apply to mobile business income, such as financial and services income and income from intellectual property, which multinationals can shift with relative ease.

To avoid a race to the bottom and negative spillover effects on other jurisdictions' tax bases, all 102 member countries of the BEPS Inclusive Framework have committed to ensuring that any regimes offered meet the criteria that have been agreed as part of BEPS Action 5. Crucially, this includes a requirement that taxpayers benefiting from a regime must themselves undertake the core business activity, ensuring the alignment of taxation with genuine business substance.

According to the progress report, released on October 16, 2017, 102 members of the BEPS Inclusive Framework have made significant commitments to ensure that their tax regimes meet the proposed criterion. The Action 5 Progress Report on Preferential Tax Regimes includes the review of 164 preferential tax regimes offered by Inclusive Framework members against the Action 5 standard.

Of the 164 regimes reviewed in the last twelve months:

  • 99 required action. However, for 93 of these 99 regimes, the required changes were already completed or initiated by Inclusive Framework members by the time the peer review report was released.
  • 56 regimes were found to not pose a BEPS risk; and
  • Nine regimes are still under review, due to "extenuating circumstances," such as the impact of the recent hurricanes on certain Caribbean jurisdictions.

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said: "These outcomes demonstrate that the political commitments of members of the Inclusive Framework are rapidly resulting in measurable, tangible progress. The jurisdictions concerned are already working to address the harmful tax practices in their preferential regimes. In fact, countries have already changed or are changing almost 95 percent of the regimes where action is needed."

Martin Kreienbaum, Chair of the Inclusive Framework on BEPS, said: "Harmful tax practices are a particularly aggressive way through which jurisdictions can encourage the erosion of other jurisdictions' tax bases. It is critical that they be addressed, to protect the level-playing field and prevent a race to the bottom. The Inclusive Framework's peer reviews are resulting in real changes to these tax incentives, making it harder for multinationals to artificially shift their profits around the world for a tax advantage."

TAGS: compliance | tax | business | double tax agreement (DTA) | tax compliance | tax avoidance | tax incentives | law | Organisation for Economic Co-operation and Development (OECD) | group taxation | tax authority | agreements | multinationals | legislation | tax planning | transfer pricing | tax rates | G20 | tax reform | Tax | Tax Evasion | BEPS

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