BEPS Action 5 – Harmful Tax Practices

BEPS Action 5 “Countering harmful tax practices more effectively, taking into account transparency and substance” aims to identify and counter harmful tax practices, taking into account transparency and substance.  This Action aims to revamp the existing framework on harmful tax practices with a priority on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for any preferential regime. Concerns on harmful tax practices are primarily about preferential regimes which can be used for artificial profit shifting and about a lack of transparency in connection with certain rulings.

The Final Report on BEPS Action 5 includes:

  • Recommendations on an agreed approach on defining what constitutes substantial activities for all preferential regimes, whether IP regimes or non-IP regimes;
  • A completed review of 43 preferential regimes in OECD and G20 countries; and
  • An agreed framework for the exchange of rulings in five clearly defined risk categories pursuant to agreed deadlines and in an agreed format.

Australia’s response BEPS Action 5

The ATO has commenced exchanging information and rulings on tax deals provided to multinationals by other countries that could contribute to tax avoidance in Australia.