OECD report shows countries’ progress shutting down tax treaty shopping

The OECD today released a report assessing whether 116 countries are following through on their commitments to add provisions to their tax treaties that shut down a practice know as tax treaty shopping. Tax treaty shopping allows multinational firms to avoid tax on cross-border transactions.

Tacking tax treaty shopping is one of the four minimum standards agreed to by nations as a result of the 2015 OECD/G20 base erosion profit shifting (BEPS) plan.

The report reveals that a large majority of “Inclusive Framework on BEPS” member countries have begun to modify their tax treaty network to comply with these minimum BEPS standards, the OECD said. While the Inclusive Framework is now comprised of 127 countries, the report assesses the progress of the 116 jurisdictions that were members of the framework on June 30, 2018.

The OECD said that 82 of 116 jurisdictions assessed have either some agreements that are already compliant with the standards or that are expected to be compliant soon. Seven jurisdictions are outside the scope of the review because they have no comprehensive tax agreements.

Today’s report notes that most countries are using the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) to implement the BEPS anti-tax treaty shopping rules.

The OECD urges all countries to sign the MLI to easily incorporate the BEPS plan agreements into their tax treaties.

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