OECD dismantles more harmful tax regimes

OECD dismantles more harmful tax regimes

The OECD has reviewed 295 tax regimes since the start of the BEPS project

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The OECD advises that it is making continued progress countering harmful tax practices under the base erosion and profit shifting (BEPS) Action 5 minimum standard. In a new report, the OECD provides a status update on its on-going, multi-jurisdiction reviews of preferential tax regimes. The OECD also confirms that all no- or nominal-tax jurisdictions reviewed have implemented "substantial activities" laws that meet the minimum standard, and that it will begin to review the effective implementation of those rules next year.

Background

The OECD regularly reviews regimes that may be "harmful" under the BEPS Action 5 minimum standard. 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 and no- or nominal-tax jurisdictions. The OECD's last report was released in 2019.

Regime review

At an October 2020 meeting, the OECD reported on significant legislative changes to 44 of 49 newly reviewed regimes:

  • 29 regimes were abolished (Aruba, Belize, Cook Islands, Dominica, Georgia, Maldives, Mauritius, Saint Kitts and Nevis, San Marino, Switzerland and Tunisia)
  • Four newly designed regimes meet the BEPS Action 5 standard (Curaçao, Hong Kong (China), San Marino and Switzerland)
  • Four regimes were amended to remove harmful features (Aruba and Morocco)
  • Seven regimes are in the process of being amended (Jamaica, North Macedonia and Qatar)
  • Two regimes are "out of scope" (regimes in Morocco) and one was amended to be out of scope (Dominican Republic)
  • Two regimes have been found potentially harmful but not actually harmful (Brunei Darussalam)

Since the start of the BEPS Project, the OECD has reviewed a total of 295 regimes, of which only 22 regimes are still under review or are in the process of being eliminated or amended.

No- or nominal-tax jurisdiction update

The OECD concludes that the United Arab Emirates made the required legislative changes to meet the "substantial activities" requirements. As a result, the OECD says that all 12 no- or nominal-tax jurisdictions now have a legal framework for collection and reporting of required information.

Next steps

In 2021, the OECD plans to continue reviewing outstanding and new regimes and its annual monitoring of certain regime aspects. The OECD also says it will change its focus for no- or nominal-tax jurisdictions to review the effective implementation of new legislation and to monitor the process to ensure that these jurisdictions have appropriate mechanisms to ensure ongoing compliance. The OECD also notes that it has discussed guidance for the operation of spontaneous information exchange for no- or nominal-tax jurisdictions, which begins in 2021.

For more information, contact your KPMG advisor.

Information is current to December 1, 2020. 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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