09/08/21

INTERNATIONAL TAX: OECD FHTP releases review of preferential tax regimes as part of ongoing BEPS project.

As published on step.org/industry-news, Monday 9 August, 2021.

The results are based on conclusions presented to the FHTP’s April 2021 meeting as part of the implementation of the OECD's Base Erosion and Profit Shifting (BEPS) Action 5 minimum standard. The BEPS initiative aims at deterring governments from operating business tax practices that encourage harmful profit-shifting between jurisdictions.

In most cases, the review found that the tax practices have either been abolished or the governments concerned have given undertakings to abolish or modify them.

The review noted that:

• Australia has fulfilled its commitment to abolish its offshore banking regime and offers a grandfathering facility to existing taxpayers that is within the FHTP’s permitted limits;
• the Philippines will abolish its regional operating headquarters regime as of 1 January 2022, without any grandfathering. In the meantime, the regime is classed is 'potentially but not actually harmful'; and
• the US has indicated its intention to repeal the foreign derived intangible income (FDII) regime, introduced in the Tax Cuts and Jobs Act 2017. This is based on a proposal that has yet to pass Congress; however, the FHTP has agreed to class the FDII deduction as 'in the process of being eliminated.'

Government commitments were also made for six other preferential tax regimes that are now in the process of being amended or eliminated in the Dominican Republic, Gabon, Jordan and Sint Maarten.

New tax concessions introduced by Hong Kong for certain insurance companies and by Georgia for international companies were evaluated as 'not harmful.'

Twelve regimes reviewed by the FHTP for the first time are still awaiting a verdict. These include Armenia's tax reliefs for free economic zones and information technology (IT) projects; Eswatini's special economic zones; Honduras' ZOLI free zones and ZEDE economic development zones; Lithuania's favourable tax treatment of large-scale investment projects and Pakistan's export regime for IT.

However, as Trinidad and Tobago has not abolished its special economic zone tax regime by the deadline set by the FHTP, the regime has been officially listed as ‘harmful.’