Treaty abuse is one of the most important sources of BEPS concerns. It is undesirable for several reasons, including:

• The benefits negotiated between the parties to a treaty are extended to residents of a third jurisdiction in a way the parties did not intend, altering the balance of bilateral concessions made by the parties;

• Income may escape taxation altogether or be subject to inadequate taxation in a way the parties did not intend; and

• The jurisdiction of residence of the ultimate beneficiary of income has less incentive to enter into a tax treaty with the jurisdiction of source, because residents of that third jurisdiction can indirectly receive treaty benefits from the jurisdiction of source without the need for the third jurisdiction to provide reciprocal benefits. 

The Action 6 Report sets out one of the four BEPS minimum standards. Members of the Inclusive Framework commit to include in their tax treaties provisions developed 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 to adapt to the specificities of each jurisdiction and its tax treaties.

The minimum standard on treaty shopping requires jurisdictions to include two components in their tax treaties: an express statement on non-taxation (generally in the preamble) and one of three methods of addressing treaty shopping.

To facilitate rapid implementation of the minimum standard and other BEPS treaty-related measures, a Multilateral Instrument (the BEPS 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 three peer reviews were carried out in 2018, 2019 and 2020, pursuant to an agreed Terms of Reference (which set out the criteria for assessing the implementation of the minimum standard) and methodology (which sets out the procedural mechanism by which reviews are conducted). The Inclusive Framework approved Revised Peer Review Documents in 2021, reflecting experience gained in conducting the peer reviews, and the methodology will be reviewed in the future as necessary (the next review is expected to be carried out in 2026).

The latest peer review on the implementation of the Action 6 minimum standard reveals that a large majority of Inclusive Framework members have modified, or are in the process of modifying, their treaty networks to implement the minimum standard and other BEPS treaty-related measures.  

The peer review reports continue to demonstrate the efficiency of the BEPS Multilateral Instrument (MLI) in implementing the minimum standard. It is the main tool Inclusive Framework members use to implement the minimum standard.  

The provisions of the BEPS MLI have started to take effect with respect to treaties concluded between pairs of jurisdictions that signed and ratified the MLI. For these treaties, tax administrations can now use effective treaty provisions to put an end to treaty shopping.