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August 10, 2021

OECD releases 2021 update on peer review of preferential tax regimes

Executive summary

On 5 August 2021, the Organisation for Economic Co-operation and Development (OECD) released an update on the results of the peer reviews of jurisdictions’ domestic laws under Action 5 (harmful tax practices) of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The results were approved on 7 June 2021 by the Inclusive Framework on BEPS.

The updated results cover 18 tax regimes. According to the press release, the total number of tax regimes that have been reviewed, or are under review, is 309. The reviews were undertaken by the Forum on Harmful Tax Practices (FHTP) and only one regime (Trinidad and Tobago) was classified to be ‘’harmful.’’ The rest of the regimes have been abolished, are in the process of being abolished, are being amended, are under review or are considered to be “not harmful.” The Inclusive Framework will continue its reviews and will provide periodic updates.

Detailed discussion


In an effort to realign the taxation of profits with the substantial activities that generate them, and to improve transparency, the OECD started work on addressing harmful tax practices in the late 1990s, resulting in a 1998 report, Harmful Tax Competition: An Emerging Global Issue.

Under this initiative, the OECD also created the FHTP, which has a mandate to monitor and review tax practices of jurisdictions, focusing on the features of preferential tax regimes. The Code of Conduct Group on Business Taxation in the European Union performs a similar role.

On 5 October 2015, the OECD released its final report on Action 5, Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance (the Action 5 Report) under its BEPS Action Plan.1 The Action 5 Report covers two main areas: (i) applying the “substantial activity” criterion when determining whether tax regimes are harmful; and (ii) improving transparency. The Action 5 Report also includes a strategy to expand the review of preferential regimes to third countries beyond the OECD/G20 countries.

This expansion has been executed through the Inclusive Framework on BEPS, which currently has 139 member jurisdictions.Each of the member jurisdictions has committed to the 2015 BEPS package and its effective implementation, including fulfilling the minimum standard on Action 5. This means that the preferential tax regimes of Inclusive Framework member jurisdictions have been, are being or will be reviewed based on the Action 5 criteria, including the new criteria on substance and transparency.

The OECD published the 2017 Progress Report on Action 5 in October 2017.3 Since then, the FHTP has continued its work on the review of preferential regimes within the scope of BEPS Action 5:

  • In May 2018, the OECD released updates to the results of the reviews of 11 preferential tax regimes.
  • On 15 November 2018, the OECD released updated results covering the assessment of 53 preferential tax regimes. On the same date, the OECD also released guidance on the application of the substantial activity requirement for “no or only nominal tax” jurisdictions.4
  • On 29 January 2019, the OECD released the 2018 Progress Report, reflecting the FHTP’s review of 255 regimes in total since the start of the BEPS project.5
  • On 23 July 2019, the OECD released an update to the results of the reviews for 56 preferential tax regimes.6 This update also includes, for the first time, the results of the review of 12 identified no or only nominal tax jurisdictions. The FHTP concluded that the legislative frameworks of 11 jurisdictions are not harmful. For the United Arab Emirates (UAE), the FHTP concluded that as of June 2019 there was one technical point outstanding and the legislation was reported as “in the process of being amended.”
  • On 23 November 2020, the OECD released an update to the results of the reviews for 49 preferential tax regimes.Also, the OECD updated the conclusion on the one no or only nominal tax jurisdiction.

On 7 June 2021, the Inclusive Framework on BEPS approved an update to the results of the reviews for 18 preferential tax regimes, which is covered in the OECD’s current release.

Updated conclusions of the preferential tax regimes review

According to the updated results, of the 18 regimes reviewed, only Trinidad and Tobago has a harmful regime because it was not able to fulfil its commitment to abolish its “Special economic zone” regime within the agreed timelines. At this time, there is no immediate consequence for Trinidad and Tobago from its regime being classified as “harmful” but this classification could lead other jurisdictions to decide to impose defensive measures against Trinidad and Tobago (e.g., non-deductibility of costs or withholding tax).

Australia has abolished its “Offshore banking unit” regime. Philippines will abolish from 1 January 2022 its “Regional operating headquarters” regime. Likewise, Sint Maarten is in the process of eliminating its “Tax exempt company’’” regime. The United States has committed to abolish its “Foreign-derived intangible income (FDII)” regime.

The regimes from Georgia (International company) and Hong Kong (Profits tax concession for specified insurers and licensed insurance broker companies) have been classified as “not harmful” because they were designed taking into account the substance requirements developed under BEPS Action 5.

The updated results include four regimes that are “in the process of being amended:”

  • Dominican Republic: "Border development" and "Logistics centres"
  • Gabon: “Special economic zones”
  • Jordan: “Aqaba special economic zone”

Finally, the FHTP reviewed seven regimes for the first time and these all are still ‘’under review:’’

  1. Armenia: “Free economic zones” and “Information technology projects”
  2. Eswatini: “Special economic zones”
  3. Honduras: “Free zones (ZOLI)” and “Employment and economic development zones (ZEDE)”
  4. Lithuania: “Large scale investment projects”
  5. Pakistan: “Export regime on IT”

The FHTP has reviewed a total of 309 tax regimes. Following the reviews and taking into account amendments that have already been made, 3 of these regimes are currently harmful, 9 regimes are potentially harmful but not actually harmful, 116 regimes are not harmful, 19 regimes are in the process of being eliminated or amended, three regimes are not operational, and 106 regimes have been abolished. Additionally, 38 regimes have been found to be out of scope and 12 regimes are still under review. The remaining three regimes relate to disadvantaged areas.

Next steps

The FHTP will continue its reviews of the tax regimes that have been identified and may identify additional regimes to review. The FHTP will also continue its annual monitoring on specific aspects of regimes. The next review update is expected in the fourth quarter of 2021.


The updated results of the review of preferential tax regimes underscore that the Inclusive Framework is continuing its focus on jurisdictions’ implementation of the BEPS Action 5 minimum standard despite the ongoing global discussions on the BEPS 2.0 project. The release of the updated results provides information to taxpayers on the status of preferential regimes in jurisdictions in which they may operate. It also informs the assessments8 made by the European (EU) Union Code of Conduct Group, which in turn may have a direct impact on taxpayers (e.g., through updates to the EU list of non-cooperative jurisdictions for tax purposes and the tax measures that refer to such list). The next update by the EU is expected in October 2021.

The FHTP will continue its work, including monitoring and review of preferential tax regimes that are in the process of being amended to conform to the Action 5 minimum standard or being eliminated. Businesses should monitor the possible legislative changes with respect to regimes that may be reviewed by the FHTP and that are relevant to them.

The indication in the OECD release that the United States has committed to abolishing its FDII regime is a new development. The Biden Administration’s tax legislative proposals released earlier this year include a proposal to repeal the FDII rules. Such repeal would require congressional action, and the path to enactment for this proposal remains uncertain at this time.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young LLP (United States), Global Tax Desk Network, New York

Ernst & Young LLP (United States), Washington, DC



  1. See EY Global Tax Alert, OECD releases final report on countering harmful tax practices under Action 5, dated 8 October 2015.
  3. See EY Global Tax Alert, OECD releases progress report on preferential regimes under BEPS Action 5, dated 18 October 2017.
  4. See EY Global Tax Alert, OECD releases updated results on scrutiny of preferential tax regimes and substantial activity requirements for no or only nominal tax jurisdictions, dated 20 November 2018.
  5. See EY Global Tax Alert, OECD releases 2018 Progress Report on Preferential Regimes under BEPS Action 5, dated 30 January 2019.
  6. See EY Global Tax Alert, OECD releases update on peer review of preferential tax regimes and no or only nominal tax jurisdictions, dated 24 July 2019.
  7. See EY Global Tax Alert, OECD releases 2020 update on peer review of preferential tax regimes and no or only nominal tax jurisdictions, dated 1 December 2020.
  8. See EY Global Tax Alert, EU Member States adopt revised list of non-cooperative jurisdictions for tax purposes, dated 24 February 2021.

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