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OECD Continues to Shut Down Harmful Tax Regimes

OECD Continues to Shut Down Harmful Tax Regimes

The OECD has now reviewed 287 tax regimes since the start of the Base Erosion and Profit Shifting (BEPS) project

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The OECD has released two reviews confirming its ongoing success in addressing harmful tax regimes. While both reviews offer positive results, they focus on different aspects of the OECD's project to review regimes that may be "harmful" under the base erosion and profit shifting (BEPS) Action 5 minimum standard. One OECD study is part of an on-going, multi-jurisdiction status update that examines preferential tax regimes; the other focuses on a small pool of 12 no tax or only nominal tax jurisdictions to ensure they have successfully implemented new tax laws requiring that "substantial activities" are carried out in the jurisdiction.

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.

Key conclusions

Review of preferential tax regimes

The OECD says 22 more jurisdictions are changing their laws to address "harmful" tax practices, the OECD shares this result following its review of 56 additional tax regimes, bringing the total number of regimes it has examined under this standard to 287.

Review of substantial activities standard

This study reviews the OECD standard for "substantial activities for no tax or only nominal tax jurisdictions", which was implemented in 12 jurisdictions' tax laws. This standard requires core income-generating activities in certain highly mobile business sectors to be conducted by qualified employees in the jurisdiction, they also require that operating expenditures be based in the jurisdiction.

According to this study:

  • Eleven of twelve jurisdictions have implemented a domestic legal framework consistent with the standard and are therefore "not harmful" (Anguilla, the Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Turks and Caicos)
  • One jurisdiction has committed to make further legislative changes to address one outstanding technical point to bring it into line with OECD standard (United Arab Emirates).

For more information, contact your KPMG adviser.

Information is current to July 30, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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