The OECD reports significant progress in the international effort to curb harmful tax practices and ensure that preferential tax regimes align taxation with substance, according to a newly released progress report.

The OECD report—Harmful Tax Practices - 2018 Progress Report on Preferential Regimes—provides an update on just under 60 tax regimes and looks at whether they have delivered on their commitment to comply with the international standard on harmful tax practices (i.e., Action 5 of the base erosion and profit shifting (BEPS) project).

The OECD has now reviewed 255 regimes from 70 jurisdictions since the start of the BEPS project.

Key conclusions
Among other things, this report concludes that:

• Forty-four regimes have delivered on their commitment to make legislative changes to repeal or amend the regime
• All intellectual property (IP) regimes that were identified in the 2015 BEPS Action 5 report are now "not harmful" and consistent with the nexus approach
• Three new or replacement regimes were found "not harmful" because they were designed to meet the BEPS Action 5 standard (Barbados, Curaçao, and Panama)
• Four regimes were found to be "out of scope" or not operational (Malaysia, the Seychelles and two regimes of Thailand), and two further commitments were given to make legislative changes to repeal or amend a regime (Malaysia and Trinidad & Tobago)
• One regime was found potentially harmful but not actually harmful (Montserrat)
• Three regimes have been found potentially harmful (all in Thailand).

Background
BEPS Action 5 "revamps" the work on harmful tax practices with a focus on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for preferential regimes such as intellectual property (IP) regimes.

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