The OECD today outlined the peer review process to be used to assess countries’ compliance with minimum standards set out in the OECD/G20 base erosion profit shifting (BEPS) plan on tax treaty abuse.
Beginning 2018, Working Party 1 of the OECD Committee on Fiscal Affairs and OECD, G20, and other countries that make up the “BEPS Inclusive Framework,” will use this peer review framework to assess countries’ compliance with the minimum standards set out in Action 6 of the BEPS plan. The group will produce annual reports detailing their findings beginning January 2019.
The Action 6 minimum standard require that countries that conclude tax treaties include a statement clarifying that the treaty is not intended to allow non-taxation or reduced taxation through avoidance or evasion.
It also requires that tax treaties include specific provisions designed prevent multinational group tax treaty abuse — either a principal purposes test, a detailed limitation on benefits provision with an anti-conduit mechanism, or a principal purposes test plus a simplified or detailed limitation on benefits provision.
The peer review document makes it clear, though, that there are significant exceptions to these minimum requirements.
The document clarifies that the BEPS minimum standards “should not be interpreted as a commitment to conclude new treaties or amend existing treaties within a specified period of time.”
As such, countries are not in breach of the minimum standards if they don’t agree to amend an existing tax treaty that does not meet the minimum standards, even if requested to do so by the other country. Countries will also meet the new OECD minimum standards as long as they agree to add the new standard to an existing tax treaty even if they are unable to quickly follow through and ratify the amended treaty provisions, the document states.
Further, countries only must add a principal purposes/limitation on benefits provision if asked by their treaty partner to do so, the peer review document states.
Jurisdiction are also not obliged to agree to any provisions that curtail tax treaty abuse of their own tax laws; rather, the required provisions must curtail tax treaty abuse of the treaty partner’s laws.