The Action Plan on Base Erosion and Profit Shifting ("BEPS Action Plan") identified 15 actions to address BEPS in a comprehensive manner. In October 2015, the G20 Finance Ministers endorsed the BEPS package which includes the report on Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance ("the 2015 Action 5 Report").
The Action 5 Report is one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the Action 5 minimum standard, and commit to participating in the peer review.
The minimum standard of the Action 5 Report consists of two parts. One part relates to preferential tax regimes, where a peer review is undertaken to identify features of such regimes that can facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other jurisdictions. The second part includes a commitment to transparency through the compulsory spontaneous exchange of relevant information on taxpayer-specific rulings which, in the absence of such information exchange, could give rise to BEPS concerns.
An ongoing monitoring and review mechanism on these two parts takes place separately, and the results are therefore published separately as well.
On 16 October 2017, the OECD released Harmful Tax Practices - 2017 Progress Report on Preferential Regimes, approved by the Inclusive Framework on BEPS. This document combines all aspects of the work of the Forum on Harmful Tax Practices (FHTP) on preferential regimes since the release of the 2015 Action 5 report. The Progress Report includes the results of the review of preferential tax regimes, which has been undertaken by the FHTP in accordance with the BEPS Action 5 minimum standard. These results have been agreed by the FHTP over the course of five meetings, held between November 2016 and September 2017. It reflects results as at October 2017.
It also includes four annexes:
The FHTP will continue its work, including to monitor and review preferential tax regimes which are being amended to conform to the Action 5 standard.
On 9 May 2018, the Inclusive Framework on BEPS approved updates to the results for regime reviews conducted in connection with BEPS Action 5. The results will be updated from time to time as approved by the Inclusive Framework.
On 1 February 2017, the OECD released the Terms of Reference and Methodology for peer reviews on the Action 5 standard for the exchange of information on tax rulings (the "transparency framework"), approved by the Inclusive Framework on BEPS. The peer review and monitoring process will be conducted by the Forum on Harmful Tax Practices (FHTP) in accordance with the Terms of Reference and Methodology, with all members participating on an equal footing.
The Terms of Reference are broken down into four aspects, which capture the key elements of the transparency framework:
The methodology sets out the procedural mechanisms by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow up process. The methodology contemplates collecting the data points relevant to the peer review by using standardised questionnaires, sent to the reviewed jurisdiction as well as the peers (i.e. the other members of the Inclusive Framework on BEPS).
The first annual report on compliance with the transparency framework covers the jurisdictions which participated in the BEPS Project prior to the creation of the Inclusive Framework. It assesses implementation for the 1 January 2016 – 31 December 2016 period. The peer review will continue in 2018.
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.