On 23 November 2020 the OECD published an update on its work in relation to harmful tax practices.

Harmful tax practices are highly favourable tax rulings or preferential tax rules or regimes intended to attract foreign income, potentially eroding the tax base of other jurisdictions.

BEPS Action 5

Action 5 of the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) on Countering Harmful Tax Practices More Effectively is one of the four BEPS minimum standards. The BEPS minimum standards are subject to peer review to ensure timely and accurate implementation

Countries that have joined the Inclusive Framework on BEPS are committed to implementing the Action 5 minimum standard and part of this commitment is to participate in peer reviews. The peer reviews are carried out by the Forum on Harmful Tax Practices (FHTP) and aim to ensure the effective implementation of the minimum standard.

Forum on Harmful Tax Practices

The FHTP conducts reviews of preferential tax regimes to determine if those tax regimes could have a harmful effect on the tax base of other countries. The FHTP monitors intellectual property (IP) regimes; tax regimes for disadvantaged areas; potentially harmful but not actually harmful regimes; the phasing out of non-IP regimes (grandfathered regimes); and substantial activities in non-IP regimes. In 2020 the FHTP strengthened its monitoring process in relation to substantial activities in non-IP regimes, placing greater emphasis on the design and operation of compliance mechanisms.

Peer reviews carried out by the FHTP in 2020 have led to legislative changes in 44 of the 49 tax regimes subject to the reviews. Of those tax regimes, 37 have been redesigned or abolished and seven are currently being amended. Since the BEPS Project began, a total of 295 regimes have been reviewed, with only 22 regimes still under review or being eliminated or amended.