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The OECD has published a report covering the assessment of 53 preferential tax regimes as part of its work under base erosion and profit shifting (BEPS) Action 5, on harmful tax practices.
BEPS Action 5 is one of the four BEPS minimum standards that members of the Inclusive Framework on BEPS have committed to adopt. One part of the Action 5 minimum standard requires substantial activity for preferential regimes, such as intellectual property (IP) regimes.
According to the report, Andorra, Curaçao, Hong Kong (China), Mauritius, San Marino, and Spain have delivered on their commitment to make legislative changes to abolish or amend their preferential tax regimes.
Lithuania, Mauritius, and San Marino have specifically designed four new/replacement regimes to meet the Action 5 standard.
Aruba, Australia, Maldives, Mongolia, Montserrat, the Philippines, and Saint Lucia have committed to make legislative changes to amend or abolish a further ten regimes.
Last, four regimes have been found to be out of scope, not yet operational, or already abolished or without harmful features (Aruba, Kenya, Paraguay).
The assessments were undertaken by the OECD’s Forum on Harmful Tax Practices. The Forum will meet in January 2019 to assess continuing reviews on the remaining regimes for which commitments to amend or abolish were made in 2017. Further discussion on all other regimes will take place in 2019.
Pascal Saint Amans, director of the OECD Centre for Tax Policy and Administration, said: “This new global standard means that mobile business income can no longer be parked in a zero tax jurisdiction without the core business functions having been undertaken by the same business entity, or in the same location.”
“The Inclusive Framework’s actions will 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.”