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OECD BEPS Action 5 Progress Report On Preferential Tax Regimes

Wednesday 18th October 2017

The OECD has recently published its BEPS Action 5 Progress Report on Preferential Tax Regimes including the review of 164 preferential tax regimes offered by inclusive framework members against the Action 5 standard.

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 between territories with relative ease. To avoid a race to the bottom and negative spillover effects on other jurisdictions’ tax bases, all 102 members 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. 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.

Of the 164 regimes reviewed in the last twelve months:

  • 99 require action;
  • For 93 of these 99 regimes, the required changes have already been completed or initiated by Inclusive Framework members,
  • 56 regimes do not pose a BEPS risk,
  • 9 regimes are still under review, due to extenuating circumstances such as the impact of the recent hurricanes on certain Caribbean jurisdictions.

Inclusive Framework members have agreed an ambitious timeline, whereby jurisdictions whose regimes have harmful features are expected to adjust their regimes as soon as possible and generally no later than October 2018.

The OECD will continue to publish the results of reviews of preferential regimes and the progress that jurisdictions are making to adjust them to reduce the risks posed to tax bases.

 

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