UK and International Tax news

OECD Releases Guidance On Spontaneous Exchange By No Or Nominal Tax Jurisdictions

Friday 1st November 2019

The OECD has released a substantial activities standard for no or only nominal tax jurisdictions which requires them to spontaneously exchange information on the activities of certain resident entities.

OECD’s 1998 Report on Harmful Tax Competition set out the framework to identify harmful tax practices, with specific criteria for assessing harmful preferential regimes and for assessing tax havens as they were then called.

Action 5 of the BEPS 2015 Action Plan committed to “revamp the work on harmful tax practices with a priority on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for any preferential regime”.

Action 5 proposed that jurisdictions may only maintain preferential regimes if certain substantial activities requirements are met. To ensure a level playing field, these requirements must also apply to jurisdictions with zero or only nominal tax rates. As a result, the Inclusive Framework on BEPS decided in November 2018 to resume the application of the substantial activities requirement for no or only nominal tax jurisdictions. This aims to ensure that substantial activities must be performed in respect of the same types of mobile business activities, regardless of whether they take place in a preferential regime or in a no or only nominal tax jurisdiction.

The new substantial activities standard for no or only nominal tax jurisdictions requires them to spontaneously exchange information on the activities of certain resident entities with the jurisdiction in which the immediate parent, the ultimate parent and/or the beneficial owners are resident. This information will allow the tax authorities of these jurisdictions to assess the substance and the activities of the entities resident in no or only nominal tax jurisdictions.

The guidance on substantial activities falls into two basic categories: activities earning non-IP income and activities for the exploitation of IP assets

For these spontaneous exchanges to take place in a coordinated and efficient manner, there is also guidance setting out the practical modalities regarding the exchange of information requirements of the standard.

It is expected that exchanges pursuant to the standard will commence in 2020.

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


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