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Navigating the EU-OECD Harmful Tax Competition Jungle

Posted on Nov. 11, 2019
Barry Larking
Barry Larking

Barry Larking helps governments and multinationals respond to international tax developments worldwide (www. barrylarking.com).

In this article, the author tracks the development of the EU and OECD actions to combat harmful tax competition and assesses the current state of play.

A lot of my day-to-day work on international tax matters revolves around harmful tax regimes and tax havens.1 In the course of a recent deep dive into OECD and EU source materials, I was once again struck by the chaotic way in which they are organized and the difficulty of getting a clear picture of the whole. This is a particular problem regarding what constitutes a harmful tax practice, which bodies target them, and how those bodies work. Given the importance attached to the concept of transparency within these institutions, it is quite astounding how nontransparent things really are.

There are several possible explanations for why it is so hard to get a grip on this material. One is the fact that the thinking has developed over time, and adjustments have been made on an ad hoc or responsive basis. Another is the fact that the organizations involved have periodically changed or have other boundary issues, so it is not always clear who is responsible for what. Whatever the reasons, the result is a set of semi-coherent rules and guidance spread over a patchwork of reports and other documents that are accessible mainly through luck and an efficient search engine. This article aims to bring some clarity.

Some Background

While many people regard the 2015 base erosion and profit-shifting action 5 final report on harmful tax practices (2015 report)2 as the start of coordinated international action on this topic, the real story started back in 1998 with the publication of the OECD’s report on harmful tax competition (1998 report).3 While previous OECD outputs had focused on tax avoidance, this report focused on what is arguably the other side of the coin: tax competition between governments. The report did not address individual tax jurisdictions but put forward criteria for identifying harmful tax competition and made recommendations as to how it could be combated. The recommendations included unilateral as well as internationally coordinated countermeasures that could be taken by OECD member countries.

At about the same time, the EU was developing a similar approach to combat the problem. This led to the 1997 adoption by EU member states of the code of conduct for business taxation.4 The code of conduct also contained criteria for identifying harmful tax competition. The criteria applied to EU member states, but unlike the OECD report, the EU initiative did not at that time include defensive measures that could be taken against noncompliant member states.

Who Is Involved and How They Work

The OECD

Organization

The OECD plays a key role in developing policies and setting standards in this area, in many cases by responding to G-20 goals and calls for action. The IMF plays a supporting role by contributing to the policy debate but is not actively involved in setting standards. In 2015 the OECD expanded the BEPS project to nonmembers, including developing countries and jurisdictions traditionally labeled as tax havens, to form the OECD/G-20 inclusive framework. Inclusive framework members, of which there are now more than 130,5 participate in the BEPS project on an equal footing and are committed to implementing the four “minimum standards,” including action 5. Given that the BEPS reports were already finalized at the time the inclusive framework was established, for most of these jurisdictions their involvement is limited to ongoing developments. Peer reviews play a key role in ensuring compliance with the minimum standards and they are carried out on behalf of the inclusive framework by the Forum on Harmful Tax Practices (FHTP). The FHTP was established by the OECD following a recommendation in the 1998 report, and it is now understood to include all inclusive framework members. There is little information regarding the composition or organization of the FHTP.

Another institution involved is the Global Forum on Transparency and Exchange of Information for Tax Purposes. Usually referred to as the global forum, this is a multilateral framework closely connected with the OECD but including non-OECD jurisdictions in its 150-plus membership. It was set up in the early 2000s to engage in a dialogue with non-OECD countries on tax issues and over time assumed some of the FHTP’s functions. The division of responsibilities became even more splintered when the OECD set up a new working party (Working Party No. 10 on Exchange of Information and Tax Compliance) that also took over some aspects of FHTP functions.6

Process

There is little information as to the FHTP’s internal processes. The OECD indicated in its 2017 progress report that decisions are reached on a consensus basis, although it is possible when necessary to use a “consensus minus one” basis of decision-making in relation to the peer review process.7 Consensus minus one is understood to mean that all parties except for the one whose measure is under scrutiny must agree on the outcome.

Although the results of these reviews are periodically published, the procedures and underlying considerations leading to the results are somewhat obscure. The BEPS Monitoring Group describes them as “highly opaque.”8 The method for reviewing preferential tax measures is based on principles and factors set out in the 1998 report.9 There does not appear to be a published equivalent to the methodology provided for carrying out peer reviews of the exchange of information on tax rulings (the other action 5 pillar).10 There is also little detail accompanying the output of the review process. When a measure is found to be problematic, there is at most a brief reference to the cause of concern, such as ring-fencing.11 This is in stark contrast to the FHTP peer review reports on the exchange of information on tax rulings.12 Another complicating factor as regards the FHTP’s progress reports on harmful tax competition is that they combine the results of reviews with substantive guidance, such as details of new standards and planning for further action.13

The EU

Organization

The EU’s counterpart to the FHTP, the Code of Conduct Group (COCG), consists of high-level representatives of EU member state governments and the European Commission.14 Details of the full composition of the COCG are not generally publicized. The COCG was established in 1998 at around the same time as the FHTP to assess tax measures covered by the EU’s Code of Conduct. Since then several subgroups have been set up to focus on specific areas. The Code of Conduct was part of a package of three measures to tackle harmful tax competition in a coordinated way within the EU. Mention should also be made of the Platform for Tax Good Governance, which supports the commission in promoting good tax governance in third countries. It comprises representatives from member state tax administrations, business and tax professional organizations, and civil society.

Process

The COCG is more transparent than the FHTP in its procedure and basis for conclusions. Links to key documents are available on the COCG dedicated webpage and specific documents can be accessed through the Council of the European Union’s online database.15 The COCG provides reports every six months to the Economic and Financial Affairs Council. Like the OECD reports, the COCG reports contain substantive guidance as well as review results.16 COCG reports must in principle either be unanimous or reflect the different opinions expressed.17 In practice, conclusions should be based on broad consensus, that is, all member states except for the one whose measure is under scrutiny must agree on the outcome, or not object to the broad consensus reference.18

The COCG reports generally identify the reviewed measures, for example how the measure works, and indicate problematic features. The first report (often referred to as the Primarolo report), was published in 1999, identified 66 potentially harmful regimes, and illustrates this approach.19 However, explanation of the conclusions reached has, in the past, been cursory.

Following calls for more transparency,20 an overview of measures reviewed between 1998 and 2018 was published in 2018.21 Similarly, a compilation of agreed COCG guidance has been published.22 The latter includes detailed procedural guidance, in particular on how to evaluate regimes, as well as guidance on the application of the COCG criteria to specific situations, for example financing or licensing activities. A disadvantage of the compilation is that it can become outdated. The more open approach to COCG activities is evidenced by the considerable amount of detail that has been published regarding the EU blacklisting initiative’s review of third country preferential regimes (see below).

What Is Harmful?

The OECD Approach

The OECD approach is focused on income from geographically mobile activities, such as financial and other service activities, including the provision of intangibles.23 In its 1998 report, the OECD distinguished between tax havens and harmful preferential regimes. In both cases, the level of taxation was a gateway criterion, but not in and of itself decisive. Zero or nominal tax, combined with a situation in which the jurisdiction offered, or was perceived to offer, itself as a place where nonresidents can escape tax in their country of residence, was considered sufficient to identify a country as a tax haven.24 In other cases, the tax haven assessments had to take into account the following three key factors, their relevance depending on the context:

  • lack of transparency;

  • lack of effective information exchange; and

  • lack of substance.

At the time of the 1998 report, a potentially harmful preferential regime was characterized by a combination of low or no tax and one or more of the following key factors:

  • lack of transparency;

  • lack of effective information exchange; and

  • regime ring-fencing.

The following additional factors could assist in identifying harmful preferential regimes:

  • an artificial tax base definition;

  • failure to adhere to international transfer pricing principles;

  • foreign-source income exempt from residence country tax (that is, territorial tax systems);

  • negotiable tax rate or tax base;

  • secrecy provisions;

  • access to a wide tax treaty network;

  • regimes that are promoted as tax minimization vehicles; and

  • regimes that encourage purely tax-driven operations or arrangements (that is, lack of substance).

The OECD has since clarified that these additional factors do not indicate on their own that a regime is potentially harmful but provide evidence that one or more of the key factors may be met.25

The 1998 report provides some explanation as to how the above factors should be applied in assessing preferential tax regimes (with relatively little attention paid to tax havens). These explanations were later supplemented by further guidance (application notes) that also focused on how the factors should be applied with respect to specific types of regimes or circumstances such as tax rulings and transfer pricing.26 While informative, some of the guidance has become outdated, such as the guidance on tax rulings.

Before a regime could be identified as a harmful preferential regime, the 1998 report required an additional assessment of whether the regime had actual harmful economic effects. This implies an empirical review of factors such as whether the regime led to a shift of existing activity rather than the creation of new activity, whether the level of substance was commensurate with the level of investment or income, and whether the primary motivation for taking advantage of the regime was tax benefits.27

Under the 1998 report, substance was potentially relevant for both tax havens and harmful regimes. In the former case it was a key factor, while in the latter it was merely an additional, supplementary factor. Substance could also be relevant in assessing whether a regime is actually harmful. However, the substance factor was, in effect, dropped for tax havens in 2001, apparently on the grounds that it was “difficult” to apply.28 Conversely, in the 2015 report, the substance factor was elevated from being an additional factor to being a key factor in determining a harmful preferential regime. This means that since 2015 a regime that meets the zero- or nominal-tax gateway criterion will be considered potentially harmful if it does not satisfy the substance requirement. The substance requirement for zero- and nominal-tax jurisdictions was reintroduced in 2018 in order to level the playing field with preferential regimes.

Since publication of the 1998 report, more changes have been made to the preferential regime factors, and still more are under consideration. The 2015 report considered possible changes to ring-fencing and the artificial definition of the tax base but did not make any recommendations. Since then, the FHTP has decided to drop two of the additional factors noted above: access to a wide tax treaty network, and promotion of the regime as a tax minimization vehicle. Ongoing consideration is being given to whether a jurisdiction with a general zero or nominal corporate tax rate or applying a territorial tax system could be considered harmful per se. The FHTP is also looking at how the substance factor should be applied to territorial tax systems.29

The EU Approach

The Code of Conduct lays down the basis for the EU’s approach to harmful tax competition. Its overarching objective is to capture measures that may significantly affect the location of business activity within the EU. This is similar to, but arguably goes further than, the OECD’s factor for identifying a harmful regime: shifting existing business activity to the jurisdiction offering the tax benefit. Like the OECD, the Code of Conduct includes concrete criteria for evaluating tax measures. Like the OECD, these are preceded by a “gateway” criterion — a measure that provides for zero or significantly lower effective taxation than the generally applicable rules. Under the EU rules, such regimes are automatically regarded as potentially harmful. The evaluation as to whether the regime is actually harmful depends on the following criteria:

  • ring-fencing;

  • absence of real economic activity and substantial economic presence;

  • alignment with internationally accepted transfer pricing principles; and

  • absence of transparency.

These factors reflect to some extent those used by the OECD in its 1998 report for identifying potentially harmful regimes, in particular ring-fencing and transparency factors. There is no equivalent to the OECD’s key factor on information exchange. However, in practice information exchange has been addressed within the EU through EU legislation with which all member states must comply.30 The remaining two factors correspond to the OECD’s transfer pricing and economic substance factors.

Although there is no mention of the OECD’s other six factors, some of these would no doubt be covered by the Code of Conduct. For example, the OECD’s negotiable tax rate or base could well be covered by the Code of Conduct’s transparency factor. While there is no direct equivalent to the OECD’s additional assessment of the actual harmful effects of the measure in question, the Code of Conduct does indicate that the overall assessment should take into account the effects of the measure on other member states.

Who Reviews What?

The answer to this question is fairly straightforward as far as the EU is concerned: the EU COCG. Conclusions of the COCG are normally endorsed at the EU ministerial level in the ECOFIN Council meetings. The process is thus one of peer review. The organization of the OECD’s process is more complex, in particular because of an apparent overlap of functions between the FHTP and the global forum. Reviews of tax havens and harmful tax regimes were originally entrusted to the FHTP, but the global forum subsequently took over the FHTP’s work on transparency and information exchange “without distinction on the basis of tax rates or tax systems.”31 That suggests that the global forum reviews these aspects both for tax havens and preferential regimes.

However, this is not the case for the exchange of information on tax rulings, responsibility for which was delegated to the FHTP under the 2015 report. The FHTP also remains the competent body for reviewing transfer pricing.32 The above statement is also misleading, as the OECD has made clear that the FHTP remains responsible for reviewing the transparency and information exchange aspects of preferential tax regimes.33 Global forum peer reviews do not address the tax haven status as such of the jurisdictions concerned or whether their preferential regimes are harmful, but simply whether they comply with the internationally agreed standards on transparency and information exchange for tax purposes. These standards relate to exchange of information on request and automatic exchange of information on financial accounts, neither of which is a feature of the BEPS project.34 The OECD has made clear that only the former is relevant in the context of harmful tax competition.35

That said, the OECD has clarified that the global forum’s transparency standard is “fundamentally different” from that applied by the FHTP.36 It is therefore not surprising that the OECD/inclusive framework has indicated that the global forum’s peer reviews on transparency will not modify the FHTP’s transparency factor.37 Similarly, the global forum’s reviews concerning exchange of information should only be taken into account by the FHTP “where relevant.”38 A similar approach applies for the FHTP’s own peer reviews of the exchange of information on tax rulings, which may be taken into account with regard to the preferential tax regime peer reviews.39

Scope of Business Activities Covered

While both the OECD and EU approaches apply only to business activities, in the case of the OECD this was further limited to income from geographically mobile activities, such as financial and other service activities like the provision of intangibles.40 The Code of Conduct applies to business activity in general without further qualification. However, in practice the Code of Conduct has been limited in a similar way to that of the OECD. It may be that the more generally worded EU approach was needed to get the required agreement of all EU member states. The exclusion of industrial or commercial activities from the OECD’s report was in fact a reason for Luxembourg not to sign up for it.41 That said, it may be noted that Luxembourg and the Netherlands registered an objection to the Code of Conduct’s initial report alleging that it targeted intragroup services, financial services, and offshore companies.42 While the OECD continues to refer to mobile activities,43 the EU recently indicated that nonmobile activities such as manufacturing and production can give rise to concerns, particularly on economic substance.44

Jurisdictional Scope

Another apparent difference between the EU and OECD approaches is their respective jurisdictional scope: The OECD’s 1998 report addressed both OECD member and nonmember jurisdictions while the Code of Conduct was addressed only to EU member states. Regarding tax havens, the 2000 progress report clarifies that the OECD’s standards were aimed at all jurisdictions, whatever their connection with the OECD.45 The Code of Conduct was clearly only aimed at EU member states and not at tax havens or other third countries. While both the OECD and EU recognized the importance of a global approach to harmful tax competition, the initial reviews of preferential tax regimes were limited to their respective member countries (and in the case of the Code of Conduct, to EU member states’ dependent or associated territories).46

The OECD’s 1998 report simply encouraged member countries to get nonmember countries to associate themselves with its guidelines.47 Similarly, the EU Code of Conduct committed member states to promote their adoption in third countries, but it also required member states to ensure the Code of Conduct was adopted in the EU’s dependent or associated territories. As explained below, the jurisdictional scope of both the EU and OECD initiatives has since been expanded.

Making the OECD Process More Inclusive

The scope of the OECD guidelines was extended in 2013 to OECD associate countries (the eight non-OECD G-20 countries and two accession countries) in the context of the BEPS action plan. This led to 43 preferential regimes being listed in the 2015 report. This review process started in 2010 and appears to have replaced results of earlier reviews.48 With the creation of the inclusive framework in 2016, the peer review process has been extended to all inclusive framework jurisdictions as well as “jurisdictions of relevance.” The latter are noninclusive framework member jurisdictions that the inclusive framework considers relevant for BEPS minimum standards. They are reviewed under BEPS action 5 under the same criteria as all other jurisdictions.49 They are not specified as such in the OECD/inclusive framework reports, but have been included in the results of the reviews. The most recent listing of OECD/inclusive framework preferential regimes is contained in the 2018 progress report.50

Zero- and Nominal-Tax Jurisdiction Reviews

In keeping with the 1998 guidance, FHTP tax haven reviews were originally not limited to OECD member countries. In 2000 the OECD published a list of countries identified as tax havens based on the 1998 report criteria.51 Some of these were subsequently designated uncooperative. However, since 2009 no jurisdictions have been listed as uncooperative as a result of commitments to implement the OECD’s standards of transparency and exchange of information.52

As already mentioned, transparency and information exchange peer reviews are now carried out by the global forum in respect of both zero (tax haven) and non-zero-tax jurisdictions. These peer reviews are obviously limited to the 157 global forum members.53 The OECD has indicated that the global forum carries out a “significant part of the work” in assessing such jurisdictions regarding transparency and the exchange of information.54 However, the OECD has also indicated that the global forum’s transparency and information exchange standards are not necessarily the same as those applied by the FHTP. It is therefore unclear whether the FHTP continues to carry out transparency and information exchange reviews in respect of zero- and nominal-tax jurisdictions.

On the other hand, it is clear that from 2001 the FHTP no longer reviewed zero- and nominal-tax jurisdictions regarding the third tax haven criterion: substance. Zero- and nominal-tax jurisdictions fall outside the scope of the FHTP’s review of preferential tax regimes, in which substance could also be a relevant factor. These jurisdictions were therefore not reviewed on substance, either as tax havens or preferential tax regimes.

That changed in 2018 with the FHTP’s decision to restart reviews of these jurisdictions in respect of substance.55 The idea was to level the playing field between zero- or nominal-tax jurisdictions and those just offering preferential regimes. The preferential regime substance criterion that had been worked out in more detail in the 2015 report was accordingly adapted for the review of zero- and nominal-tax jurisdictions.56 As in the case of preferential tax regimes, these reviews are peer reviews carried out by the FHTP on behalf of the inclusive framework.57

The EU (Black)Listing Exercise

In 2012 the commission recommended that member states assess third countries’ tax systems on tax good governance standards. These standards comprised the Code of Conduct (also referred to as “fair tax competition”) combined with a set of transparency and exchange of information guidelines. Countries that refused to cooperate or engage with the EU would be blacklisted.58

It appears that these recommendations on tax good governance were not uniformly implemented or not implemented at all, and a more coordinated, common EU approach was put forward in 2015.59 This led to the screening and listing of noncooperative tax jurisdictions in 2017 by the COCG,60 based on the 2012 tax good governance criteria.

These criteria had meanwhile been updated to reflect developments in transparency and information exchange at the global level and within the BEPS action plan.61 Part of the thinking was to create a level playing field between EU member states and third countries, taking into account steps being taken by the former to implement the global standard on automatic exchange of information and BEPS minimum standards.62 Presumably for this reason, the 28 member states and their associated territories were excluded a priori from the screening process.63 The updated tax good governance criteria were subsequently worked out in more detail. Though somewhat simplified, they may be summarized as follows:

Transparency

1.1 Automatic exchange of financial information (Common Reporting Standard) (AEOI)

1.2 Exchange of information on request (EOIR)

1.3 International agreements to allow effective AEOI and EOIR

2. Fair taxation

2.1 No harmful preferential tax measures (that is, Code of Conduct)

2.2 Should not attract profits which do not reflect economic activity

3. BEPS minimum standards commitment.64

Zero-Tax and EU Blacklisting

The revised criteria still required compliance with the Code of Conduct, now under the heading of “fair taxation.” However, an additional criterion was added — that the jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity in the jurisdiction (Criterion 2.2). In practice, this has been treated as a requirement for economic substance, corresponding to the economic substance criterion in the Code of Conduct. The reason for including substance as a separate criterion in the blacklisting exercise appears to have been to ensure zero- or nominal-tax jurisdictions also had to comply with the principles underlying the Code of Conduct. Because the Code of Conduct was formulated by reference to preferential tax regimes (by comparison with the generally applicable tax rules applied by a jurisdiction), it was inapplicable to zero-tax jurisdictions. This problem was similar to that of the FHTP: Its review of substance prior to 2018 was de facto limited to preferential regimes.

The more neutral wording of Criterion 2.2 meant that the substance criterion would also apply to such jurisdictions. Somewhat confusingly, the announcement of the blacklisted jurisdictions stated that the Code of Conduct’s five criteria should be applied to zero- or nominal-tax jurisdictions “by analogy” in assessing compliance with the new Criterion 2.2.65

The intention seems to be not to apply all the Code of Conduct’s criteria directly to zero- and nominal-tax jurisdictions, but only insofar as those criteria are relevant for the attraction of profits without economic substance, Criterion 2.2. Thus, for example, ring-fencing business activities might be relevant in assessing whether a zero-tax regime attracted corporate activity without corresponding substance.

Although not expressly stated, the clear intention is that zero- and nominal-tax jurisdictions within the scope of the screening should be assessed not only with regard to economic substance but also with regard to the other two tax good governance pillars: transparency and BEPS measures.66

Status of the EU Blacklist

The initial listing resulted in a “blacklist” of noncooperative jurisdictions and a “grey list” of jurisdictions that committed to complying within a specified period. While the process involves a dialogue with the jurisdictions concerned, ultimately it is the EU’s decision to list a jurisdiction. This contrasts with the OECD/inclusive framework process or that of the Code of Conduct, which more resembles a peer review process. Since the initial listing in 2017, there have been various changes to the listed jurisdictions, mainly as a result of commitments made to abolish or amend the measures in question, or the introduction of new measures.

Like the OECD, the EU is in the process of revising or expanding its criteria for reviewing third country preferential regimes, in particular regarding beneficial ownership and implementation of anti-BEPS minimum standards.67 The jurisdictional scope of the reviews will also be expanded in 2019 to include Argentina, Mexico, and Russia.68 The current blacklist consists of American Samoa, Belize, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, the U.S. Virgin Islands, and Vanuatu.69 Detailed information on the EU’s list of noncooperative jurisdictions may be found on the Council of the EU’s website.

Overlaps in EU-OECD Reviews

Although there are differences between the EU and OECD/inclusive framework approaches to harmful tax competition, there are also many similarities. Since both adopt listing as the primary mechanism to encourage compliance, these differences may not matter much in practice. A listed jurisdiction will in principle want to get off whichever list it is on. From a policy perspective it might seem better to have common standards, but this is probably unrealistic across the board, given the diverging economic and political interests involved. However, regarding economic substance, there is talk of establishing a single global standard in this field,70 and more generally the EU is seeking to align its tax good governance rules and listing criteria with those of the OECD.71

In the meantime, from a process perspective it is clearly inefficient to duplicate reviews. In practice, the EU COCG tends to defer to the results of OECD/inclusive framework reviews when appropriate. This applies both to reviews carried out by the FHTP,72 and those carried out by the global forum.73

Summary and Conclusions

Both the EU and OECD have taken measures to prevent harmful tax competition. Lack of transparency is a concern in both cases. This includes the composition and working methods of the institutions concerned, the criteria used to identify harmful tax practices, and the basis for reaching conclusions on specific measures. A particular problem under the OECD process is identifying which body is actually responsible for reviewing a given issue.

There are many similarities and differences between the EU and OECD/inclusive framework approaches. The use of periodic updating of reports both by the EU and OECD, combining substantive guidance (such as details of new standards and planning for further action) with the results of country reviews, makes it difficult to access relevant and complete information. That said, steps are being taken to improve the position, particularly by the EU. Both the EU and OECD endeavor to apply their tax good governance principles on a global scale, but again, their approaches differ. OECD/inclusive framework reviews are essentially peer-based, while the EU reserves peer reviews for EU member states. The criteria for identifying harmful tax practices are similar but not identical. Although this can partly be explained by their different legal and economical contexts, it also leads to inefficient duplication as well as uncertainty. The EU is in dialogue with the OECD to align the two approaches. Let us hope they succeed.

FOOTNOTES

1 See, e.g., Barry Larking, “A Matter of Substance,” Tax Notes Int’l, Jan. 22, 2018, p. 329.

2 OECD, “Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 — 2015 Final Report” (2015).

3 OECD, “Harmful Tax Competition: An Emerging Global Issue” (1998).

4 Council of the European Union, Council Conclusions concerning taxation policy, 98/C 2/01 (Dec. 1, 1997).

5 A list of members as of October 2019 is available online.

6 See supra note 2, at 16.

7 OECD, “Harmful Tax Practices — 2017 Progress Report on Preferential Regimes: Inclusive Framework on BEPS: Action 5” (2017) (hereinafter, “2017 progress report”), at 14.

8 BEPS Monitoring Group, “International Corporate Tax Reform and the ‘New Taxing Right’” (Sept. 2019), at 13.

9 See supra note 2, at para. 143.

10 OECD, “BEPS Action 5 on Harmful Tax Practices — Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework” (Feb. 2017). Some guidance is provided in Annex C to the 2017 progress report; see supra note 7.

11 See, e.g., OECD, “Harmful Tax Practices — 2018 Progress Report on Preferential Regimes” (2019) (hereinafter, “2018 progress report”).

12 See, e.g., OECD, “Harmful Tax Practices — 2017 Peer Review Reports on the Exchange of Information on Tax Rulings: Inclusive Framework on BEPS: Action 5” (2018).

13 See supra note 7.

14 See European Council, “Code of Conduct Group (Business Taxation)” (last updated Mar. 13, 2019).

15 Id.

16 See, e.g., COCG Report to the ECOFIN Council, 9652/19 (May 27, 2019).

17 Council of the European Union, Council Conclusions concerning the establishment of the Code of Conduct Group, 98/C 99/01 (Mar. 9, 1998).

18 COCG Report to the ECOFIN Council, 16084/08 (Nov. 20, 2008).

19 COCG Report to the ECOFIN Council, 14313/99 (Nov. 23, 1999).

20 Code of Conduct, “New Multiannual Work Package,” 10420/18 (June 22, 2018).

21 For the most recent version, see Code of Conduct, “Overview of the Preferential Tax Regimes Examined by the Code of Conduct Group (Business Taxation) Since Its Creation in March 1998,” 9639/3/18 (June 12, 2019).

22 For the most recent version, see “Agreed Guidance by the Code of Conduct Group (Business Taxation): 1998-2018,” 5814/4/18 (Dec. 20, 2018).

23 See supra note 3, at 8.

24 See id., at 21.

25 See supra note 11, at 39 and 51-52.

26 OECD, “Consolidated Application Note Guidance in Applying the 1998 Report to Preferential Tax Regimes” (2004).

27 See supra note 3, at 34-35.

29 See supra note 11, at 38.

30 Exchange on request was covered by the first version of this legislation dating from 1977 (Council Directive 77/799 EEC). Automatic exchange in specific areas has been provided since 2013 (Council Directive 2011/16/EU). Automatic exchange of financial account information has been generally provided for within the EU since 2016 (Council Directive 2014/107/EU).

31 OECD, “Resumption of Application of Substantial Activities Factor to No or Only Nominal Tax Jurisdictions, BEPS Action 5” (2018), at 10.

32 See supra note 26, at 14.

33 See supra note 11, at 53 and 73-76.

34 See, e.g., Global Forum on Transparency and Exchange of Information for Tax Purposes, “Tax Transparency 2018: Report on Progress” (2018).

35 See supra note 26, at 14.

36 See supra note 11, at 53.

37 See id., at 39.

38 See id., at 53.

39 See id., at 53.

40 See supra note 3, at 8.

41 See id., at Annex II.

42 See supra note 19, at 5.

43 See, e.g., supra note 11 at 13.

44 COCG Report to the ECOFIN Council, Code of Conduct Group (Business Taxation), at “Annex I: Guidance on the Interpretation of the Third Criterion [that is, economic substance] of the Code of Conduct for Business Taxation” (Nov. 16, 2018).

45 OECD, Report to the 2000 Ministerial Council Meeting and Recommendations by the Committee on Fiscal Affairs, “Progress in Identifying and Eliminating Harmful Tax Practices” (2000) (hereinafter, “2000 progress report”), at 10-11.

46 See, e.g., OECD 2000 progress report, id.; and EU Primarolo report, supra note 20.

47 See supra note 3, at 57.

48 See supra note 2, at 61 et seq.

49 See supra note 11, at 11.

50 See supra note 11.

51 See supra note 45.

52 See OECD, “List of Unco-Operative Tax Havens” (last accessed Oct. 10, 2019).

53 A list of global forum members is available online (last accessed Oct. 10, 2019). Although there is a large overlap, members of the global forum are not necessarily members of the inclusive framework, and vice versa.

54 See supra note 11, at 37.

55 See supra note 31.

56 Id. at 11-20.

57 For the first peer review results on the substance criterion, see OECD, “Harmful Tax Practices — Peer Review Results Inclusive Framework on BEPS: Action 5 Update (as of July 2019)” (2019).

58 European Commission, “Recommendation Regarding Measures Intended to Encourage Third Countries to Apply Minimum Standards of Good Governance in Tax Matters,” C(2012) 8805 final (Dec. 6, 2012).

59 European Commission, “A Fair and Efficient Corporate Tax System in the European Union: 5 Key Areas for Action,” COM(2015) 302 final (2015).

60 Council of the European Union, Council Conclusions, “The EU List of Non-Cooperative Jurisdictions for Tax Purposes,” 15429/17 (Dec. 5, 2017).

61 European Commission, “Communication on an External Strategy for Effective Taxation,” COM(2016) 24 final, Annex 1 (Jan. 28, 2016).

62 Id. at 4-5.

64 Council of the European Union, “Criteria and Process Leading to the Establishment of the EU List of Non-Cooperative Jurisdictions for Tax Purposes,” 14166/16 (Nov. 8, 2016).

65 See supra note 60, at Annex VII.

66 For example, Palau, a zero-tax jurisdiction, was blacklisted with regard to Criterion 2.2 but also gave commitments regarding transparency and BEPS.

67 See, e.g., COCG Report to the ECOFIN Council, 9637/18, at 19-21 (June 8, 2018).

68 COCG Report to the ECOFIN Council, 9652/19 (May 27, 2019), at 20.

69 Council of the European Union, Release 634/19 (Oct. 10, 2019).

70 See supra note 68, at 27.

71 Council of the European Union, Council Conclusions, 10340/19 (June 14, 2019).

72 See supra note 60, at Annex IV, point 2.5.

73 See supra note 61, at Annex 1.

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