UK and International Tax news

OECD Issues Update On Preferential Tax Regimes

Sunday 31st July 2022

The OECD/G20 Inclusive Framework on BEPS has recently commented on progress in combatting harmful tax practices following ongoing reviews of preferential tax regimes and substance in no or only nominal tax jurisdictions.

At its April 2022 meeting, the Forum on Harmful Tax Practices (FHTP) agreed new conclusions on 12 regimes as part of the implementation of the BEPS Action 5 minimum standard on harmful tax practices.

Eswatini and Honduras made government commitments and, therefore, three regimes are now in the process of being amended/eliminated. Four regimes have been amended to be in line with the standard and are now not harmful (Costa Rica, Greece and Kazakhstan). Italy has abolished its patent box regime.

Three regimes were concluded as potentially harmful (Armenia and Pakistan); the FHTP will assess at its next meeting if these regimes are actually harmful. One new regime from Cabo Verde is under review.

Since the start of the BEPS Project, the FHTP has reviewed 319 regimes, and these are now classified as follows:

Not harmful – 65

Disadvantaged areas – 3

Out of scope – 33

Out of scope (amended) – 6

Abolished – 112

Not harmful (amended)  – 63

In the process of being eliminated/amended – 16

Under review – 4

Not operational – 3

Potentially harmful but not actually harmful – 8

Potential harmful – 5

Harmful – 1

As part of the standard on substantial activities requirements in no or only nominal tax jurisdictions, the FHTP undertakes an annual monitoring exercise to assess whether the standard operates effectively in practice. The FHTP started this exercise in 2021 and has now revealed the results of the first monitoring year.

Recommendations for substantial improvement were made for four jurisdictions (Anguilla, the Bahamas, Barbados and the Turks and Caicos Islands) and areas for focused monitoring were identified for another four jurisdictions (Bahrain, Bermuda, the British Virgin Islands and the Cayman Islands). No issues were identified for Guernsey, Jersey, the Isle of Man and the UAE.

The next annual monitoring will take place over the second half of this year. The FHTP will then consider whether the overall compliance of jurisdictions is still satisfactory, particularly for those jurisdictions for which recommendations for substantial improvement were made.

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

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