Action 6 Prevention of tax treaty abuseMinimum Standard
BEPS Action 6 addresses treaty shopping through new treaty provisions whose adoption forms part of a minimum standard that members of the BEPS Inclusive Framework have agreed to implement. It also includes specific rules and recommendations to address other forms of treaty abuse. Action 6 identifies tax policy considerations jurisdictions should address before deciding to enter into a tax agreement.
Action overview
What is the issue? treaty abuse and so-called “treaty-shopping” arrangements..
Taxpayers engaged in treaty shopping and other treaty abuse strategies undermine tax sovereignty by claiming treaty benefits in situations where these benefits were not intended to be granted, thereby depriving jurisdictions of tax revenues.
Why does it matter?
Treaty abuse is one of the most important sources of BEPS concerns. It.
What are we doing to solve it?
As part of the BEPS package, the Action 6 Report sets out one of the four BEPS minimum standards, which is that members of the BEPS Inclusive Framework commit to include in their tax treaties provisions dealing with treaty shopping to ensure a minimum level of protection against treaty abuse. They also agreed that some flexibility in the implementation of the minimum standard is required as these provisions need to be adapted to each jurisdiction’s specificities and to the circumstances of the negotiation of tax agreements.
The minimum standard on treaty shopping requires jurisdictions to include two components in their tax agreements: an express statement on non-taxation (generally in the preamble) and one of three methods of addressing treaty shopping.
To foster the implementation of the minimum standard and other BEPS treaty-related measures in the global treaty network, a Multilateral Instrument (the MLI) that can modify existing bilateral tax agreements was concluded.
The implementation of the Action 6 minimum standard is subject to a peer review process. The first peer review on the implementation of the Action 6 minimum standard was carried out in 2018. The peer review for 2019 is currently ongoing.Peer reviews
What are the results so far?
The first peer review on the implementation of the Action 6 minimum standard reveals that a large majority of Inclusive Framework members have begun to translate their commitment on treaty shopping into actions and are now in the process of modifying their treaty network. In total, on 30 June 2018, 82 jurisdictions had some treaties that were already compliant with the minimum standard or that were going to shortly comply.
The first peer review shows the efficiency of the Multilateral Instrument (MLI) in implementing the minimum standard and the other treaty-related BEPS measures. It is by far the preferred tool of Inclusive Framework members for implementing the minimum standard. The majority of the jurisdictions that have signed the MLI have listed almost all their treaties under the MLI.
As of 1 January 2019, the provisions of the MLI started to take effect with respect to some treaties. For the treaties for which the MLI is effective, tax administration can now use effective treaty provisions to put an end to treaty-shopping.More on the MLI
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Action specific content
The Action 6 minimum standard
THE EXPRESS STATEMENT preamble now appears in the 2017 OECD Model Tax Convention:; or
- the PPT alone;.
Previous attempts to tackle treaty shopping
Concerns about treaty shopping are not new.).
In 1977, the Commentary on Article 1 of the OECD Model was also updated to include a section on the improper use of tax agreements. In 1986, the Committee on Fiscal Affairs (CFA) published two reports: Double Taxation and the Use of Base Companies and Double Taxation and the Use of Conduit Companies. In 2002, the Committee published the report, Restricting the Entitlement to Treaty Benefits. The Commentary on Article 1 was expanded on several occasions, notably in 2003, with the inclusion of sample provisions that countries could use to counter treaty shopping.
A review of jurisdiction practices shows that they have tried to address treaty shopping in the past and have used different approaches to do so. Some have relied on specific anti-abuse rules based on the legal nature, ownership, and general activities of residents of a jurisdiction party to a tax agreement. Others have favoured a general anti-abuse rule based on the purpose of transactions or arrangements.Model Tax Convention