OECD review of tax ruling exchange standard finds 36 countries could improve

By Doug Connolly, MNE Tax

Out of 131 reviewed countries, 95 received no flags for improvement with respect to implementing the OECD minimum standard on exchange of information on tax rulings. However, 36 countries fell short, including France and India, according to the 2020 peer review assessment report released by the OECD on December 14.

Information exchange of taxpayer rulings

The OECD base erosion and profit shifting (BEPS) project’s Action 5 on harmful tax practices comprises one of the four minimum standards that the 141 member countries of the Inclusive Framework have committed to implementing. The transparency framework under BEPS Action 5 requires spontaneous exchange of information with respect to certain taxpayer-specific rulings.

With an aim to prevent tax avoidance, the exchange of information is intended to ensure that tax administrations are informed about how taxpayers are taxed in other jurisdictions in which they operate.

The information required to be exchanged relates to rulings with respect to certain preferential regimes, unilateral advance pricing agreements (APAs), downward adjustments of taxable profits, permanent establishments, and related party conduits.

Implementation of the standard is monitored partly through a peer review process that evaluates countries’ exchange of information on these taxpayer-specific rulings that could potentially give rise to BEPS tax avoidance concerns.

Latest peer review

The latest Action 5 peer review report covers implementation of the standard during calendar year 2020. It reviews 131 jurisdictions out of the 141 in the Inclusive Framework, omitting those that either joined too late to be reviewed or that do not impose a corporate income tax.

During 2020, the countries reviewed issued 1,700 rulings in scope of the transparency framework – bringing the cumulative total, including past years, to almost 22,000 in-scope tax rulings. In connection with these rulings, the jurisdictions undertook approximately 5,000 exchanges in 2020. This is less than in other reviewed years: 7,000 in 2019, 9,000 in 2018, 14,000 in 2017, and 6,000 in 2016.

Of the reviewed jurisdictions, 95 met all the “terms of reference” and thus received no recommendations for improvement. The terms of reference, under an agreement on the peer review process, look at four key elements of the transparency framework: the information gathering process, the exchange of information, confidentiality of information received, and statistics.

France was among the countries whose implementation of the transparency framework was flagged for improvement. Specifically, the review flagged France – for the fifth consecutive year – for not identifying or exchanging information on new entrants to the intellectual property regime or on taxpayers benefitting under the former intellectual property regime from the third category of intellectual property asset.

India also had an aspect of its implementation flagged. For the fourth consecutive year, the report flagged India for delays in the exchange of information on future APAs, and it recommended that India continue efforts to ensure such information is exchanged as soon as possible.

France and India were the only counties among the G20 that received recommendations for improvement. Some other EU countries beyond France received recommendations, including Spain and Switzerland.

Of the 36 countries flagged, 10 received just one recommendation for improvement. Most of the remaining jurisdictions that did not meet the “terms of reference” were flagged for two aspects of implementation. Several countries – including Hungary, Jordan, the Philippines, and Thailand – were flagged for three aspects of implementation needing improvement.