Executive summary

On 20 March 2024, the Organisation for Economic Co-operation and Development OECD) released two sets of documents on the minimum standard under Base Erosion and Profit Shifting (BEPS) Action 6 relating to prevention of treaty abuse: (i) the sixth annual peer review report (the Report) on the compliance with the minimum standard by member jurisdictions of the Inclusive Framework on BEPS; and (ii) the revised Peer Review Documents on BEPS Action 6 on the modified process to be used to carry out the peer review beginning in 2024.

The peer reviews included in the Report were carried out under the peer review methodology as it was revised in April 2021. The Report reflects information on the implementation of the minimum standard by the 142 jurisdictions that were members of the Inclusive Framework on 31 May 2023.¹

The Report indicates that more than 1,270 bilateral agreements and two multilateral agreements between members of the Inclusive Framework complied with the minimum standard as of 31 May 2023.

The Report also indicates that more than 1,120 agreements concluded between members of the Inclusive Framework are covered by the BEPS Multilateral Instrument (MLI). The Report further provides updates on the progress that jurisdictions have made since 2021 and shows that many jurisdictions have followed the recommendations made in the prior peer review, either by formulating a plan for implementation of the minimum standard or by completing the steps for entry into effect of the BEPS MLI, as applicable.

The revised Peer Review Documents indicate that, going forward, comprehensive peer reviews will occur every five years rather than annually. Targeted support also will be offered to any Inclusive Framework member jurisdiction that requires assistance in implementing the minimum standard, including during interim years when no comprehensive peer review occurs. The terms of reference for the Action 6 peer review have not been modified.

Detailed discussion

Background

Action 6, relating to the prevention of treaty abuse, includes one of the four minimum standards resulting from the BEPS project. The final BEPS Action reports released in October 2015 included an announcement that all minimum standards would be subject to a peer review process. At that time, the OECD indicated that at a later stage it would issue peer review documents for the Actions that include minimum standards, which would provide the terms of reference and the methodology by which the peer reviews would be conducted.

In 2016, the OECD released the peer review documents for BEPS Action 6. The terms of reference reiterated that to be in compliance with the minimum standard on treaty shopping, jurisdictions are required to include in their tax treaties: (i) an express statement that the common intention of the parties to the treaty is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements; and (ii) an anti-abuse provision in the terms specified in the Action 6 final report.² In April 2021, the OECD released a revised version of the peer review documents on Action 6.³

The OECD released reports on the first five peer reviews, conducted between 2018 and 2022, as follows:

1. First peer review: in 2018, covering the 116 jurisdictions that were members of the Inclusive Framework on 30 June 2018⁴
2. Second peer review: in 2019, covering the 129 jurisdictions that were members of the Inclusive Framework on 30 June 2019⁵
3. Third peer review: in 2021, covering the 137 jurisdictions that were members of the Inclusive Framework on 30 June 2020⁶
4. Fourth peer review: in 2022, covering the 139 jurisdictions that were members of the Inclusive Framework on 31 May 2021⁷
5. Fifth peer review: in 2023, covering the 141 jurisdictions that were members of the Inclusive Framework on 31 May 2022⁸

Sixth Action 6 peer review report

On 20 March 2024, the OECD released the sixth Action 6 peer review report and an accompanying press release. The Report was approved by the Inclusive Framework on 25 January 2024 and prepared for publication by the OECD Secretariat. The peer review reflects information available as of 31 May 2023 (the cut-off date) and was carried out using the 2021 revised peer review documents.

The Report is divided into eight chapters:

1. Implementation of the minimum standard: Aggregate data and key figures
2. Key role of the BEPS MLI
3. Plans for the implementation of the minimum standard and support provided to jurisdictions
4. Recommendations
5. Difficulties in implementing the minimum standard
6. Conclusion and next steps
7. Background on the Action 6 minimum standard and peer review
8. Jurisdictional sections, with detailed information on the implementation of the minimum standard for each member of the Inclusive Framework (as of 31 May 2023)

According to the Report, the 142 jurisdictions that were members of the Inclusive Framework on 31 May 2023 reported a total of 2,510 agreements in force on that date involving Inclusive Framework members, including six multilateral agreements and approximately 850 agreements between Inclusive Framework members and nonmembers. Eight member jurisdictions⁹ reported they had no comprehensive tax agreements in force. Moreover, 124 Inclusive Framework members had at least some agreements that already complied with the minimum standard or that were subject to a complying instrument or to a general statement on the detailed Limitation on Benefits (LOB) and would therefore become compliant soon.

The Report also indicates that as of 31 May 2023, more than 1,270 bilateral agreements between members of the Inclusive Framework complied with the Action 6 minimum standard. Approximately 85 additional agreements not subject to review (i.e., agreements between Inclusive Framework member and non-member jurisdictions) also complied with the minimum standard, bringing the total number of compliant agreements concluded by members of the Inclusive Framework to nearly 1,360 agreements, which represents an increase of close to 30% compared to 2022.

As in previous years, the Report shows that among the three alternative methods for implementing the second component of the minimum standard (i.e., the Principal Purpose Test (PPT), the PPT supplemented by a detailed or simplified LOB or a detailed LOB together with an anti-conduit mechanism), the PPT alone remained the most widely used. For the agreements listed under the BEPS MLI, all 96 members of the Inclusive Framework that were parties or signatories to the BEPS MLI as of the cut-off date were implementing the preamble statement and the PPT. Thirteen jurisdictions also opted to supplement the PPT with a simplified LOB through the BEPS MLI when possible. Seven additional jurisdictions have agreed to accept a simplified LOB in agreements with partners that opted for it under the BEPS MLI.

The report indicates that 28 jurisdictions are working to give effect to their plans for the implementation of the Action 6 minimum standard, covering approximately 260 noncompliant agreements. Furthermore, four out of the six jurisdictions that have given effect to their implementation plans did so either by joining the BEPS MLI or expanding their lists of covered tax agreements (Austria, Azerbaijan, Eswatini and Indonesia). Six jurisdictions have also stated that their plans, which were discussed with the OECD Secretariat, remain under internal deliberation and, therefore, the Report does not include detail on these plans. An update on the status of each implementation plan will be provided in the next Action 6 peer review report.

According to the Report, eight out of the 19 jurisdictions that received recommendations in the 2022 peer review have completed the steps to have the BEPS MLI take effect with respect to their agreements listed to be covered: Armenia, Côte d'Ivoire, Mexico, Papua New Guinea, Romania, Tunisia and Vietnam. Further, the Report reflects that in this peer review 12 jurisdictions¹⁰ have received recommendations to complete the steps to have the BEPS MLI take effect, and four jurisdictions¹¹ have received recommendations to develop a plan for implementing the minimum standard.

Revised peer review documents on Action 6

The revised peer review documents on Action 6 reflect the approach agreed by the Inclusive Framework for reviewing compliance with the Action 6 minimum standard from 2024 onward. According to the revised methodology, the terms of reference that set out the criteria for assessing the implementation of the minimum standard remain unchanged from the original mandate in 2017.

The revised methodology sets out the procedural mechanism by which jurisdictions will complete the peer reviews from 2024 onward. As of 2024, comprehensive peer reviews will occur every five years rather than annually, with the OECD Secretariat providing interim-year assistance to Inclusive Framework jurisdictions for implementing the minimum standard. The Secretariat will also actively engage with Inclusive Framework members to provide an opportunity to raise issues about the minimum standard, and Working Party 1 will meet at least annually to discuss progress on the minimum standard's implementation.

The steps to be followed under the revised comprehensive peer review process will continue with a few additions. As part of the comprehensive peer review process, the Secretariat will contact jurisdictions that have tax treaties for which a plan for the implementation of the minimum standard needs to be developed and will offer support to jurisdictions that have developed a plan for the implementation of the minimum standard or that are signatories to the BEPS MLI but have not yet completed the steps for the provisions of the BEPS MLI to take effect.

During the interim years (years in which no comprehensive peer review process is carried out) the Secretariat will proactively communicate with jurisdictions that (i) have set a BEPS MLI plan, but require assistance in its execution, (ii) have signed the BEPS MLI but have yet to finalize the necessary steps for its provisions to be applied, or (iii) require assistance in creating a plan for implementing the minimum standard into their tax treaties. Moreover, jurisdictions with a minimum standard implementation plan already in progress should provide annual updates regarding any changes and should report any challenges in executing their plans at any point. The Secretariat remains available to provide jurisdictions with support at any time concerning the implementation and interpretation of the minimum standard.

Next steps

The implementation of the minimum standard will continue to be monitored.

The next comprehensive peer review will be launched in the first half of 2028 and will include an update on the steps taken by each jurisdiction that has received a recommendation, as well as an update on the status of each jurisdiction's implementation plan.

According to the Revised Peer Review Documents, the next revised peer review process will take place in 2029.

Implications

According to the Report, the 2023 peer review shows that most jurisdictions that are members of the Inclusive Framework generally are respecting their commitment to implement the minimum standard. The 2023 peer review also indicates that the BEPS MLI, which has been the main tool used to implement the minimum standard, has continued to have a significant effect on the bilateral tax treaty network.

As in previous years, the 2023 peer review shows that the PPT remains the most widely used option to implement the Action 6 minimum standard. For businesses, this may create some uncertainty, as countries' interpretation of the PPT can be subjective and could lead to controversy. Solutions such as Mutual Agreement Procedures would likely be the most effective means of resolving any differences in interpretation.