The integration of national economies and markets has increased substantially in recent years, putting a strain on the international tax rules, which were designed more than a century ago. Weaknesses in the current rules create opportunities for base erosion and profit shifting (BEPS), requiring bold moves by policy makers to restore confidence in the system and ensure that profits are taxed where economic activities take place and value is created. Following the release of the report Addressing Base Erosion and Profit Shifting in February 2013, OECD and G20 countries adopted a 15-point Action Plan to address BEPS in September 2013. The Action Plan identified 15 actions along three key pillars: introducing coherence in the domestic rules that affect crossborder activities, reinforcing substance requirements in the existing international standards, and improving transparency as well as certainty. After two years of work, measures in response to the 15 actions were delivered to G20 Leaders in Antalya in November 2015. All the different outputs, including those delivered in an interim form in 2014, were consolidated into a comprehensive package. The BEPS package of measures represents the first substantial renovation of the international tax rules in almost a century. Once the new measures become applicable, it is expected that profits will be reported where the economic activities that generate them are carried out and where value is created. BEPS planning strategies that rely on outdated rules or on poorly co-ordinated domestic measures will be rendered ineffective. Implementation is now the focus of this work. The BEPS package is designed to be implemented via changes in domestic law and practices, and in tax treaties. With the negotiation of a multilateral instrument (MLI) having been finalised in 2016 to facilitate the implementation of the treaty related BEPS measures, over 90 jurisdictions are covered by the MLI. The entry into force of the MLI on 1 July 2018 paves the way for swift implementation of the treaty related measures. OECD and G20 countries also agreed to continue to work together to ensure a consistent and co-ordinated implementation of the BEPS recommendations and to make the project more inclusive. Globalisation requires that global solutions and a global dialogue be established which go beyond OECD and G20 countries. A better understanding of how the BEPS recommendations are implemented in practice could reduce misunderstandings and disputes between governments. Greater focus on implementation and tax administration should therefore be mutually beneficial to governments and business. Proposed improvements to data and analysis will help support ongoing evaluation of the quantitative impact of BEPS, as well as evaluating the impact of the countermeasures developed under the BEPS Project. As a result, the OECD established the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework), bringing all interested and committed countries and jurisdictions on an equal footing in the Committee on Fiscal Affairs and all its subsidiary bodies. The Inclusive Framework, which already has more than 135 members, is monitoring and peer reviewing the implementation of the minimum standards as well as completing the work on standard setting to address BEPS issues. In addition to BEPS members, other international organisations and regional tax bodies are involved in the work of the Inclusive Framework, which also consults business and the civil society on its different work streams. This report was approved by the Inclusive Framework on 17 February 2021 and prepared for publication by the OECD Secretariat. 1. Action 6 of the BEPS Project identified treaty abuse, and in particular treaty shopping, as one of the principal sources of BEPS concerns. Owing to the seriousness of treaty shopping, jurisdictions have agreed to adopt, as a minimum standard, measures to address it, and to subject their efforts to an annual peer review. This 2020 peer review report contains the results of the third yearly peer review, background information on treaty shopping, and the “jurisdictional sections” which provide detailed information on the implementation of the minimum standard for each member of the Inclusive Framework. 2. The efforts made by most Inclusive Framework members in tackling treaty shopping started to come to light in the 2020 peer review, in particular for those that ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Although very few of the reported agreements met the minimum standard at the time of the first two peer reviews conducted in 2018 and 2019, the MLI, which has been the main tool used to implement the minimum standard, has started to have a significant effect and is now strengthening the bilateral tax treaty network of jurisdictions that ratified it. The MLI did not offer a way for jurisdictions to implement the minimum standard through a detailed limitation on benefits provision instead of the principal purpose test (PPT). 3. Thus, because of the ratification of the MLI by those jurisdictions, the number of compliant agreements covered by the MLI has increased by nearly 500% since the last peer review. This year’s peer review, however, reveals an important difference in the progress made on the implementation of the minimum standard between the jurisdictions that have ratified the MLI and other jurisdictions that have not. 4. In fact, the jurisdictions that had not signed or ratified the MLI have still generally made no or very little progress in implementing the minimum standard. This report acknowledges, though, that the starting point for a jurisdiction’s exposure to treaty abuse may be different based on whether its existing agreements or domestic law already contain anti-treaty shopping tools. 5. A new feature of this year’s peer review is to provide additional information on some jurisdictions’ progress towards the implementation of the minimum standard and to encourage signatories to the MLI to ratify it as soon as possible. This information does not give rise to formal recommendations. The additional information on jurisdictions’ progress can be found in the section “Implementation Issues” of each of the jurisdictional sections in Chapter 5. 6. The key objectives of this year’s peer review and the additional information provided in the section “Implementation issues” of the jurisdictional sections are to encourage signatories to the MLI to ratify it, close the gaps in the MLI’s coverage and provide support to other jurisdictions to strengthen their tax treaty network.
OECD (2021), Prevention of Tax Treaty Abuse – Third Peer Review Report on Treaty Shopping : Inclusive Framework on BEPS: Action 6, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/d6cecbb8-en.
