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OECD: Update on preferential regimes, new results on no-tax, nominal-tax jurisdictions

OECD: Update on preferential regimes, new results

The Organisation for Economic Cooperation and Development (OECD) today issued a release reporting a status update on implementing the base erosion and profit shifting (BEPS) Action 5 minimum standard.

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According to today’s OECD release, 22 jurisdictions are changing their laws to address harmful tax practices.

Also, the “Inclusive Framework on BEPS” has approved the most recent results of reviews of jurisdictions' domestic laws conducted by the OECD Forum on Harmful Tax Practices (FHTP). The review covered not only preferential tax regimes, but the results of the review of the substantial activities factor for no only nominal jurisdictions.

Review of substantial activities factor for no tax or only nominal tax jurisdictions

After agreeing to the new substantial activities standard for no-tax or only nominal-tax jurisdiction in November 2018, the 12 "no or only nominal tax jurisdictions" identified by the FHTP introduced the necessary domestic legal framework to meet the standard. The standard requires that for certain highly mobile sectors of business activity, the core income generating activities must be conducted with qualified employees and operating expenditure in the jurisdiction.

The OECD reported that the FHTP has now reviewed the new domestic laws of the 12 no-tax or only nominal-tax jurisdictions.

  • For 11 of these jurisdictions (Anguilla, the Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Turks and Caicos Islands), the FHTP concluded that the domestic legal framework is in line with the standard and therefore "not harmful.”
  • Regarding the remaining jurisdiction reviewed by the FHTP (United Arab Emirates), the FHTP concluded that the legal framework was in line with the standard but with one technical point outstanding. In this respect, the UAE committed to make further legislative changes and the law is now "in the process of being amended."


Review of preferential tax regimes

During a June 2019 meeting, the FHTP made new and updated decisions on 56 regimes—some of which were reviewed for the first time:

  • Thirteen (13) regimes were repealed (including Cabo Verde, Malaysia, Mongolia, Montserrat, Morocco, Switzerland, Thailand).
  • Three regimes were amended to remove the potentially harmful features (Cabo Verde, Malaysia, Mauritius) and four new regimes were classified as "not harmful" because they were specifically designed to meet the BEPS Action 5 standard (including Malta, Poland, Thailand).
  • Four regimes are in the process of being amended (including Aruba, Greece, Kazakhstan).
  • Eight regimes were found to be out of scope for the FHTP (including Cabo Verde, Nigeria, Paraguay, Vietnam).
  • Two regimes have been found potentially harmful but not actually harmful (Aruba, Vietnam), and one regime is not operational (Paraguay).
  • One regime has been found actually harmful (Jordan).
  • Twenty-one (21) additional regimes have now been placed under review (including Cook Islands, Dominica, Dominican Republic, Jamaica, Morocco, North Macedonia, Qatar).

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