Panama and Uruguay have been listed by the OECD as being among 20 countries with “harmful tax practices”, though unlike others on the list the organisation accepts that their tax regimes are “in the process of being amended”.
The full list of 20 identifies countries where tax laws are thought to constitute “harmful preferential regimes”, which facilitate tax avoidance by multinationals, in the process adding to the tax base erosion of other countries.
The report, Harmful Tax Practices – 2017 Progress Report on Preferential Regimes, was based on a review of 164 tax regimes against standards set as part of the 2015 OECD/G20 base erosion profit shifting (BEPS) plan agreements.
The aim of these standards is to “counter harmful tax practices more effectively, taking into account transparency and substance”, and cover tax incentives that apply to mobile business income.
While the report lists Uruguay and Panama as having four different preferential tax regimes, it lists those regimes as ““in the process of being amended”.
That’s because, by being BEPS Inclusive Framework members, the two jurisdictions have agreed to adjust their tax laws to meet the agreed standards as soon as possible.
Neighbouring Colombia, having previously been considered to have a harmful tax regime, has now abolished that regime, the report noted.
Harmful tax practices ‘particularly aggressive’
Martin Kreienbaum, chair of the Inclusive Framework on BEPS, pictured above, described harmful tax practices as a “particularly aggressive way” through which jurisdictions can encourage the erosion of other jurisdictions’ tax bases.
He said that it is critical that they be addressed, to “protect the level playing field and prevent a race to the bottom”.
He claimed that the Inclusive Framework’s efforts are creatingin real changes to these tax incentives, making it harder for multinationals “to artificially shift their profits around the world for a tax advantage”.
France and Italy fail to commit to reform
The full list of countries listed in the report comprise Spain, Switzerland, Andorra, Barbados, Belize, Botswana, Costa Rica, Curaçao, France, Hong Kong (China), Macau (China), Italy, Mauritius, Malaysia, Panama, San Marino, Seychelles, Thailand, Trinidad and Tobago, and Uruguay.
All of the countries listed have told the OECD that they plan to reform, amend or remove the contentious regimes with the exception of France and Italy.
The OECD has encouraged countries that have been listed to amend their laws as soon as possible, and will continue to review them.
Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said: “The jurisdictions concerned are already working to address the harmful tax practices in their preferential regimes. In fact, countries have already changed, or are changing, almost 95 percent of the regimes where action is needed.”