BEPS ALERT – OECD Formally Identifies Aspects of Barbados’ Preferential Tax Regime as ‘Harmful’

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and reports that that it and other ‘identified’countries are in the process of  rapidly dismantling these rules.

Barbados’ preferential tax regime has been formally identified as facilitating tax avoidance by multinationals; and reducing the tax base of other countries in an OECD report released on Monday.

The report deems several tax regimes “potentially harmful,” which means that the regime has features of a harmful regime but economic assessment of harm caused by the regime is not yet complete.

Others are categorised as “potentially harmful but not actually harmful,” because the regime has harmful characteristics but does not have significant economic consequences.

The BEPS standards on preferential tax regimes are designed to stop countries from offering tax breaks for geographically mobile income that facilitate base erosion and profit shifting.

Besides intellectual property tax regimes, the BEPS standards seek to abolish certain harmful headquarters regimes, financing and leasing regimes, banking and insurance regimes, distribution and service center regimes, shipping regimes, holding company regimes, fund management regimes, and miscellaneous other regimes.

“Harmful tax practices are a particularly aggressive way through which jurisdictions can encourage the erosion of other jurisdictions’ tax bases,” said Martin Kreienbaum, Chair of the Inclusive Framework on BEPS. “It is critical that they be addressed, to protect the level playing field and prevent a race to the bottom.

The Inclusive Framework’s peer reviews are resulting in real changes to these tax incentives, making it harder for multinationals to artificially shift their profits around the world for a tax advantage.”

 

The review, conducted by the OECD Forum on Harmful Tax Practices (FHTP), assessed countries’ tax laws against internationally-agreed standards set in Action 5 of the 2015 OECD/G20 base erosion profit shifting (BEPS) plan agreements. Altogether, 164 tax regimes were reviewed. Both the report and the BEPS standards have been endorsed by the “BEPS inclusive framework,” a coalition of over 100 countries.

 

The review, conducted by the OECD Forum on Harmful Tax Practices (FHTP), assessed countries’ tax laws against internationally-agreed standards set in Action 5 of the 2015 OECD/G20 base erosion profit shifting (BEPS) plan agreements. Altogether, 164 tax regimes were reviewed. Both the report and the BEPS standards have been endorsed by the “BEPS inclusive framework,” a coalition of over 100 countries.

The List

According to the FHTP report, the following nations have one or more harmful preferential tax regimes contrary to BEPS Action 5 standards: Spain, Switzerland, Andorra, Barbados, Belize, Botswana, Costa Rica, Curaçao, France, Hong Kong (China), Macau (China), Italy, Mauritius, Malaysia, Panama, San Marino, Seychelles, Thailand, Trinidad and Tobago, and Uruguay.

The government of each country has pledged to cure the noncompliance, except for the governments of France and Italy, the report said.

 

The FHTP report also said that during the two-year review period, the following seven countries abolished tax regimes identified as harmful: Colombia, Luxembourg, Liechtenstein, Malta, San Marino, Singapore, and Malaysia.

A tax regime is considered “abolished” if no new entrants are permitted into the tax regime, a definite date for complete abolition of the regime has been announced, and the regime is transparent and has effective exchange of information.

The BEPS standards on preferential tax regimes are designed to stop countries from offering tax breaks for geographically mobile income that facilitate base erosion and profit shifting.

Besides intellectual property tax regimes, the BEPS standards seek to abolish certain harmful headquarters regimes, financing and leasing regimes, banking and insurance regimes, distribution and service center regimes, shipping regimes, holding company regimes, fund management regimes, and miscellaneous other regimes.

“Harmful tax practices are a particularly aggressive way through which jurisdictions can encourage the erosion of other jurisdictions’ tax bases,” said Martin Kreienbaum, Chair of the Inclusive Framework on BEPS. “It is critical that they be addressed, to protect the level playing field and prevent a race to the bottom. The Inclusive Framework’s peer reviews are resulting in real changes to these tax incentives, making it harder for multinationals to artificially shift their profits around the world for a tax advantage.”

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