Following the report Addressing Base Erosion and Profit Shifting (BEPS) in February 2013, OECD and G20 countries has adopted an Action Plan to address BEPS. The Action Plan has determined 15 actions along three key points: introducing coherence in the domestic rules that affect cross-border activities, reinforcing substance requirements in the existing international standards, and improving transparency and certainty.
BEPS Action 5 is one of the four BEPS minimum standards applicable to all members of the Inclusive Framework on BEPS and any jurisdictions of relevance. So far 127 jurisdictions have joined the Inclusive Framework and three jurisdictions of relevance have been included in the review process. Since the beginning of the BEPS project, the Forum on Harmful Tax Practices (“FHTP”) has reviewed a significant number of preferential regimes, publishing the results in the several reports, including the 2017 Progress Report (OECD, 2017). In 2017 more than 80 regimes were committed to be complied with the BEPS Action 5 minimum standard, followed by the fulfilment. In addition, the FHTP has reviewed the preferential regimes of new Inclusive Framework members, as well as newly introduced regimes, by the total number of 255.
The current results indicate that all IP regimes, except for one, are either eliminated or amended in compliance with the nexus approach and other standards.
The amendments have mostly considered the transparency in order to ensure that the conditions for entry to the regime are clear and known in advance, provided that all the previous provisions would end by 30 June 2021 at the latest.
In 2018 the Inclusive Framework advanced the new standard for substantial activities requirements within no or only nominal tax jurisdictions, ensuring a level playing field between those introducing substantial activities requirements in preferential regimes, with those offering a general zero or almost zero corporate tax rate.
Additionally, a number of important issues, including the revision of the key factors and providing guidance on the application of these factors for assessing regimes have been clarified in light of the BEPS project and the FHTP’s experience.
Further, the FHTP has published the Progress Report 2018 (OECD, 2018), where it also sets out the steps to be undertaken in 2019. This includes the new global standard on substantial activities, harmful tax practices, such as the application of the low effective tax rate factor, territorial tax systems, digital economy, as well as their implementation.
The full report can be downloaded on this link: OECD PROGRESS REPORT 2018
For further details on this update, kindly contact:
Franco Falzon C.P.A, LL.M
(Managing Partner)
E: franco@ffinternational.com.mt
T: +356 2010 7771
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