17. The FHTP will continue to work on delivering a level playing field, including by ensuring substantial activities requirements are in place in no or only nominal tax jurisdictions. It will review newly identified regimes, monitor the changes made to date to ensure no new risks emerge, and consider the effectiveness of the criteria including whether revisions or additions are needed and more broadly work within the context of the Inclusive Framework to deliver outcomes that contribute to a fair and coherent international taxation framework.
18. A significant deliverable in 2019 will be the review of the new global standard on the resumption of the substantial activities factor for no or only nominal tax jurisdictions. This will follow a similar approach to the process used for preferential regimes, evaluating the legal framework, having open discussion with the relevant jurisdictions, conducting monitoring of the implementation to ensure effectiveness in practice, and supplemented by specific spontaneous exchange of information. Further work will be undertaken in co-operation with Working Party 10 on Exchange of Information and Tax Compliance to develop the modalities and details for this spontaneous exchange of information. The Inclusive Framework will continue to report on the outcomes of this review process in due course, as it will do for preferential regimes.
19. Furthermore, the FHTP conducts a yearly monitoring process in order to ensure if the implementation of certain aspects is in practice effectively meeting the standard. This occurs through standardised questionnaires, followed by a discussion in the FHTP with the relevant jurisdictions and an opportunity for the FHTP to reconsider its conclusion if necessary to ensure that the standards are met. The monitoring process takes place with respect to the following aspects:
IP regimes (with respect to the granting of benefits to the third category of IP assets and the use of the rebuttable presumption1) (OECD, 2017[1]).
Benefits granted to the third category of IP assets can only take place under certain conditions (e.g. it should contain a specific certification process and only small and medium enterprises can benefit). In addition, jurisdictions can only let taxpayers use the nexus approach as a rebuttable presumption in exceptional circumstances which should be demonstrated by the taxpayer. In both these circumstances, the FHTP conducts monitoring in order to ensure that the options are used appropriately.
Potentially harmful but not actually harmful regimes2 (OECD, 2017[1]).
Where the FHTP concludes that a regime is potentially harmful but not actually harmful such a determination is based on statistical data, such as the number of taxpayers using the regime and the amount of income benefiting. However, this data may change and therefore the conclusion of “potentially but not actually harmful” is revisited as necessary.
Disadvantaged areas regimes3 (OECD, 2017[1]).
Certain regimes are designed to encourage development in disadvantaged areas and may include a preferential rate for IP income, whilst they do not specifically provide for this. The FHTP concluded that such regimes do not pose a high risk of BEPS, provided certain conditions are met, and therefore the IP part of these regimes can be concluded as a “disadvantaged areas regime” which do not have to meet the requirement for the nexus approach. The FHTP monitors that the relevant conditions continue to be met.
Substantial activities with respect to non-IP regimes reviewed in 2017 and thereafter.4 (OECD, 2017[1]).
The FHTP monitors whether the substantial activities requirements for these non-IP regimes are operating consistently with the legislative framework on which the finding of the FHTP was based, such as how taxpayer compliance is reviewed and how tax benefits are denied if substantial activities requirements are not met, together with relevant statistical data, including aggregate numbers of employees and income benefitting from the regime.
Grandfathered non-IP regimes (OECD, 2017[1]).5
Monitoring with respect to grandfathered non-IP regimes is conducted in order to ensure that jurisdictions are enforcing and implementing their grandfathering provisions in an effective way. The approach to this monitoring is contained in Annex B.
20. The FHTP will also continue reviewing any preferential tax regimes that remain under review, any regimes of jurisdictions that join the Inclusive Framework going forward, and any additional “jurisdictions of relevance” as needed. In addition, it will review any newly introduced regimes.