On 29 May 2017 the OECD released the document that will form the basis of the peer review of the minimum standard on treaty shopping. This minimum standard arises from Action 6 of the project on base erosion and profit shifting (BEPS). Action 6 is concerned with preventing the granting of treaty benefits in inappropriate circumstances.

The minimum standard on treaty shopping is one of the four BEPS minimum standards that are subject to peer review.  The four minimum standards relate to countering harmful tax practices; preventing tax treaty abuse; transfer pricing documentation in relation to country by country reporting requirements; and making dispute resolution mechanisms more effective. The standards are each subject to peer review to encourage implementation and ensure that there is a level playing field for taxpayers and tax administrations.

The jurisdictions that are members of the Inclusive Framework on BEPS are committed to including the minimum standard in their tax treaties. This involves including a statement that the intention of the parties to the treaty is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through treaty shopping or other arrangements. It also involves including treaty provisions to implement that intention, either by a Principal Purposes Test (PPT) combined with a limitation on benefits (LOB) rule; a Principal Purposes Test alone; or a detailed version of a LOB rule.

The minimum standard would be implemented in each bilateral treaty where the parties agree to this and by the method on which they agree. The commitment applies to existing and future tax treaties but does not oblige countries to conclude new treaties or amend existing treaties within any particular time frame. If a particular jurisdiction is not concerned about the effect of treaty shopping on its own taxation rights it is not obliged to apply the provisions provided that it is prepared to include provisions in the treaty that the treaty partner can use to protect its own taxation rights.

The document issued by the OECD sets out the basis for the peer review process for Action 6 and includes the terms of reference with criteria for assessing how far the Action 6 standard has been implemented; and the methodology outlining the procedural mechanism for conducting the peer reviews.

The document covers the procedure to be followed in the case of any interpretation and application issues that may arise while implementing the minimum standard on treaty shopping. Also covered is the procedure to follow where a jurisdiction has difficulty in obtaining the agreement of another jurisdiction in the Inclusive Framework to implement the minimum standard on Action 6.

The document notes that inclusion of the minimum standard on treaty shopping in the multilateral instrument for implementation of tax treaty related BEPS measures would be an effective way of quickly implementing the minimum standard. The members of the Inclusive Framework are therefore encouraged to use the multilateral instrument for implementation of the minimum standard.