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Other measures to combat tax avoidance and evasion

The Multilateral Instrument

In November 2016 more than 100 countries concluded negotiations, held under the auspices of the OECD, on a Multilateral Instrument (MLI) designed to implement relevant parts of the BEPS Action Plan. The MLI will open for signature by interested countries in June 2017, and on 7 June a signing ceremony will take place at the OECD. The MLI is a flexible instrument that gives choices to Signatories and may be adopted in total or in part. Thus pairs of signatories will need to work out bilaterally which treaty provisions are to be changed.  The instrument includes provisions to counter tax avoidance through treaty abuse and to enhance dispute resolution in cross-border tax matters.

The multilateral instrument brings about a Principled Purpose Test (PPT), which may or may not be combined with a simplified limitation on benefits (LOB) provision in order to prevent treaty abuse. Within the framework of the MLI, signatory countries can choose which of the proposed clauses they wish to apply to their covered tax agreements. The approach is unlikely to bring uniformity to the application of international tax rules by signatory countries, The MLI is expected to disseminate the standards under which the OECD expects countries to negotiate double-taxation conventions going forward.

Exchange of Tax Rulings

The final report on BEPS Action 5 developed a framework covering all rulings that could give rise to BEPS concerns in the absence of compulsory spontaneous exchanges. The framework covers six categories of rulings:

  1. rulings related to preferential regimes;
  2. cross border unilateral advance pricing arrangements (APAs) or other unilateral transfer pricing rulings;
  3. rulings giving a downward adjustment to profits;
  4. permanent establishment (PE) rulings;
  5. conduit rulings; and
  6. any other type of ruling where the FHTP agrees in the future that the absence of exchange would give rise to BEPS concerns.

The list does not in itself imply that the listed rulings are per se preferential or that they will in themselves give rise to BEPS, but it acknowledges that a lack of transparency in the operation of a regime or administrative process can give rise to mismatches in tax treatment and instances of double non-taxation. For countries which have the necessary legal basis, exchange of information under this framework started taking place from 1 April 2016 for future rulings and the exchange of certain past rulings started being implemented on the 31st December 2016. The Report on Action 5 also sets out best practices for cross-border rulings. On July 2016 the OECD released the ETR XML Schema providing the common IT-format for implementing the exchanges on tax rulings between Competent Authorities.

Inclusive Framework on the implementation of the BEPS Action Plan

The OECD/G20 Project to address base erosion and profit shifting (BEPS) was launched following a request by G20 Leaders in June 2012. The 15-point BEPS Action Plan was delivered in October 2015. Following the delivery of the outcomes of the BEPS Action Plan, in 2015, the G20 called on the OECD to build "a framework by early 2016 with the involvement of interested non-G20 countries and jurisdictions, particularly developing economies, on an equal footing". In February 2016, the proposed architecture of the Inclusive Framework on BEPS ("the Inclusive Framework") was endorsed by G20 Finance Ministers, and its inaugural meeting was held in Kyoto, Japan in June 2016. Almost 100 countries and jurisdictions are currently members of the Inclusive Framework, working on an equal footing and committed to implement the BEPS package. The Inclusive Framework established a Steering Group guiding the work in regards to the implementation of the BEPS Action Plan.

More than half of the Inclusive Framework membership is composed of non-OECD and non-G20 countries. International and regional tax organisations are observers (IMF, UN, WBG, ATAF, CIAT and CREDAF) of the Inclusive Framework and/or are partners in a new series of regional meetings to facilitate developing country inclusion (such as IOTA).