Action 5 Harmful tax practices

Minimum Standard

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.

Action overview


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What is the issue?

The Forum on Harmful Tax Practice (FHTP) has been conducting reviews of preferential regimes since its creation in 1998 in order to determine if the regimes could be harmful to the tax base of other jurisdictions. The current work of the Forum on Harmful Tax Practices (FHTP) comprises three key areas.

  • Firstly, the assessment of preferential tax regimes 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.
  • Secondly, the peer review and monitoring of the Action 5 transparency framework 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
  • Thirdly, the review of substantial activities requirements in no or only nominal tax jurisdictions to ensure a level playing field.

Action specific content

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Preferential tax regimes

In January 2019, the OECD released Harmful Tax Practices - 2018 Progress Report on Preferential Regimes, approved by the OECD/G20 Inclusive Framework on BEPS. The Progress Report includes the results of the review of preferential tax regimes, which has been undertaken by the Forum on Harmful Tax Practices (FHTP) since the start of the BEPS Project in accordance with the BEPS Action 5 minimum standard. It reflects results as at January 2019. While the consolidated regime results are now contained in the 2018 Progress Report, the 2017 Progress Report includes important guidance on the standards applicable to substantial activities requirements for non-IP regimes, the timelines for amending or abolishing regimes and the monitoring of certain regimes in practice.

The 2018 Progress Report also includes three annexes:

  1. Output of BEPS Action 5 mandate for considering revisions or additions to FHTP framework;
  2. Monitoring data on grandfathered non-IP regimes; and
  3. Key reference documents.

In July 2019, the Inclusive Framework released updated conclusions on the review of preferential regimes.

Transparency 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:

  1. Information gathering process;
  2. Exchange of information;
  3. Confidentiality of information received;
  4. Statistics.

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). 

Peer Review Reports on the Exchange of Information on Tax Rulings

  • 2017 Peer Review Reports - This report reflects the outcome of the second annual peer review of the implementation of the Action 5 minimum standard and covers 92 jurisdictions. It assesses implementation for the 1 January 2017 – 31 December 2017 period.
  • 2016 Peer Review Reports - 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.

Schema for the exchange on tax rulings

The Exchange on Tax Rulings XML Schema and User Guide standardised electronic format for the exchange on tax rulings between jurisdictions.

A dedicated XML Schema and User Guide have also been developed to provide structured feedback on received exchange of tax rulings (ETR) information. The ETR Status Message XML Schema will allow tax administrations to provide structured feedback to the sender on frequent errors encountered, with a view to improving overall data quality and receiving corrected information, where necessary.

The current version of the ETR XML Schema and User Guide, as well as the related Status Message Schema and User Guide, is applicable for all exchanges until 31 March 2020, whereas the second, new version will be in use as from 1 April 2020.

Global standard on substantial activities in no or only nominal tax jurisdictions

The Inclusive Framework on BEPS has decided to resume the application of the substantial activities requirement for no or only nominal tax jurisdictions. Originally a criteria set out in the harmful tax framework from 1998, it had not been applied to date. However, with the elevation of the substantial activities requirements in preferential regimes, and the broad-based membership of the Inclusive Framework working together on an equal footing, it was considered the right time to ensure that equivalent substance requirements apply in no or only nominal tax jurisdictions. This global standard means that mobile business income cannot 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. In doing so, the Inclusive Framework 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.

In July 2019, the Inclusive Framework released the results of the review of no or only nominal tax jurisdictions.

In October 2019, the Inclusive Framework released guidance on the framework for the spontaneous exchange of information collected by no or only nominal tax jurisdictions pursuant to the standard. The guidance addresses the practical modalities regarding the exchange of information requirements of the standard, including the exchange timelines, the international legal framework and clarifications on the key definitions. The guidance also contains the standardises IT-format to be used for the exchanges, the NTJ XML Schema.


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