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OECD Explains New Disclosure Req's For No Or Low Tax States

Friday, November 8, 2019

The OECD has released guidance on new information reporting obligations for territories that levy no or only nominal rates of corporate tax, as part of its work on BEPS Action 5, covering harmful tax practices.

BEPS Action 5 provides that jurisdictions may only maintain preferential regimes if certain "substantial activities" requirements are met. The Inclusive Framework on BEPS decided in November 2018 that, in order to ensure a level playing field, these requirements must also apply to jurisdictions with zero or only nominal tax rates.

The new substantial activities standard for no or only nominal tax jurisdiction requires them to spontaneously exchange information on the activities of certain resident entities with the jurisdiction(s) in which the immediate parent, the ultimate parent, and/or the beneficial owners are resident. This information will allow the tax authorities of these jurisdictions to assess the substance and the activities of the entities resident in no or only nominal tax jurisdictions.

To ensure that these spontaneous exchanges take place in a coordinated and efficient manner, the OECD's new guidance sets out the practical modalities regarding the exchange of information requirements of the standard.

It contains guidance on the timelines for the exchanges, the international legal framework, and clarifications on the key definitions to make sure that jurisdictions receive coherent and reliable information. The guidance also contains a standardized IT-format for the spontaneous exchanges, the NTJ XML Schema, and the related user guide.

It is expected that exchanges pursuant to the standard will commence in 2020.