copy the linklink copied!Executive Summary
copy the linklink copied!Context for the exchange of information on tax rulings (the “transparency framework”)
The BEPS Action 5 minimum standard on the compulsory spontaneous exchange of information on tax rulings (the “transparency framework”) provides tax administrations with timely information on rulings that have been granted to a foreign related party of their resident taxpayer or a permanent establishment, which can be used in conducting risk assessments and which, in the absence of exchange, could give rise to BEPS concerns.
The transparency framework requires spontaneous exchange of information on five categories of taxpayer-specific rulings: (i) rulings related to certain preferential regimes, (ii) unilateral advance pricing arrangements (APAs) or other cross-border unilateral rulings in respect of transfer pricing, (iii) rulings providing for a downward adjustment of taxable profits, (iv) permanent establishment (PE) rulings; and (v) related party conduit rulings.1 The requirement to exchange information on the rulings in the above categories includes certain past rulings as well as future rulings, pursuant to pre-defined periods which are outlined in each jurisdiction’s report and that varies according to the time when a certain jurisdiction has joined the Inclusive Framework or has been identified as a Jurisdiction of Relevance. The exchanges occur pursuant to international exchange of information agreements, which provide the legal conditions under which exchanges take place, including the need to ensure taxpayer confidentiality.
The inclusion of the above categories of rulings in the scope of the transparency framework is not intended to suggest that the issuance of such rulings constitutes a preferential regime or a harmful tax practice. In practice, tax rulings can be an effective way to provide certainty to taxpayers and reduce the risk of disputes. Rather, the need for transparency on rulings is that a tax administration's lack of knowledge or information on the tax treatment of a taxpayer in another jurisdiction can impact the treatment of transactions or arrangements undertaken with a related taxpayer resident in their own jurisdiction and thus lead to BEPS concerns. The availability of timely and targeted information about such rulings, as agreed in the template in Annex C of the Action 5 Report, Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance (OECD, 2015[1]), is intended to better equip tax authorities to quickly identify risk areas.
This framework was designed with a view to finding a balance between ensuring that the information exchanged is relevant to other tax administrations and that it does not impose an unnecessary administrative burden on either the country exchanging the information or the country receiving it.
copy the linklink copied!Scope of this review
This is the third annual peer review of the transparency framework. It covers individual reports for 112 jurisdictions, including 20 jurisdictions reviewed for the first time. This comprises all Inclusive Framework members that joined prior to 30 June 2018 and Jurisdictions of Relevance identified by the Inclusive Framework prior to 30 June 2018, as well as being the first review for certain developing countries that had requested additional time and were deferred from the previous years’ peer reviews.
Eight other members of the Inclusive Framework have not been assessed under the transparency framework, namely Anguilla, the Bahamas, Bahrain, Bermuda, the British Virgin Islands, the Cayman Islands, the Turks and Caicos Islands and the United Arab Emirates. These jurisdictions do not impose any corporate income tax, and therefore cannot legally issue rulings within the scope of the transparency framework and nor do Inclusive Framework members exchange information on rulings with them. Therefore, these jurisdictions are considered to be outside the scope of the transparency framework. In addition, Sint Maarten was affected by a natural disaster and therefore it was considered appropriate that the peer review of the jurisdiction be deferred to the next annual review.
The reviews contained in this annual report cover the steps jurisdictions have taken to implement the transparency framework during the calendar year 2018. The reviews have been prepared using information from each reviewed jurisdiction, input from peers who received exchanges of information under the transparency framework, and input from the delegates of the Forum on Harmful Tax Practices (“FHTP”).
copy the linklink copied!Key findings
Key findings from this third peer review include:
As at 31 December 2018, almost 18 000 tax rulings in the scope of the transparency framework had been issued by the jurisdictions being reviewed. This is the cumulative figure, including certain past rulings issued since 2010.
Almost 30 000 exchanges of information took place by 31 December 2018, with almost 9 000 exchanges undertaken during 2018, almost 14 000 exchanges undertaken during 2017 and over 6 000 exchanges during 2016.
Most of the jurisdictions already have undertaken steps to implement the necessary legal framework for spontaneous exchange of information on rulings for the year in review.
80 jurisdictions did not receive any recommendations, as they have met all the terms of reference.
55 recommendations for improvement have been made for the year in review.
Action is being taken to respond to the recommendations. Of the 60 recommendations for improvement made to the 92 jurisdictions in the previous year peer review, 21 recommendations have been actioned and removed during the year in review. In a number of other cases, plans are in place in respect of the remaining recommendations and it is expected they will be removed in next year’s review.
However, there are nine recommendations made to OECD and G20 countries which are recommendations issued for the third time, because action has not yet been taken in respect of a number of cases. This is particularly with regard to the transparency obligations that apply to grandfathered IP regimes. Where recommendations are recurring from previous years, this is noted in the report. These members are urged to take action to ensure these recommendations are removed for the fourth and final review under this methodology. The Secretariat has offered its advice to support these jurisdictions, where relevant.
106 peer input questionnaires were submitted providing feedback on the conduct of the exchanges by Inclusive Framework members. Peer input is not mandatory, but in cases where it was provided it has in a number of cases allowed jurisdictions to revise their processes and improve the clarity of templates.
In a number of cases, the peer review process has assisted jurisdictions in identifying areas where improvement is required, and jurisdictions have been able to take action to implement changes over 2019 while the peer review was ongoing. Where these changes were implemented in 2019, they are generally not taken into account in the recommendations issued for the year 2018. However, these changes will be reviewed in the subsequent peer review.
A compilation of the recommendations made is provided below.
copy the linklink copied!Next steps
The peer review is an annual process that has taken place in 2017, 2018 and 2019, with a fourth review scheduled to take place in 2020. The next annual peer review will continue to track the progress of jurisdictions and the actions taken to respond to any remaining recommendations, and an update on statistics on the exchanges of information. The carrying out of any subsequent reviews after 2020 will be subject to the agreement of the Inclusive Framework on BEPS. First discussions on the effectiveness of the rulings standard, and the format for any further peer review process, will take place in 2020.
Note
← 1. The Action 5 Report, Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance also provides that additional types of rulings could be added to the scope of the transparency framework in the future, where the FHTP and the Inclusive Framework agree that such a ruling could lead to BEPS concerns in the absence of spontaneous information exchange.
