OECD releases 2021 update on peer review of preferential tax regimes

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Executive summary

On 24 January 2022, the Organisation for Economic Co-operation and Development (OECD) released an update (pdf) on the results of the peer reviews of jurisdictions’ domestic laws under Action 5 (harmful tax practices) of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The results were approved on 18 January 2022 by the Inclusive Framework on BEPS.

The updated results cover new decisions on nine preferential tax regimes. According to the OECD press release, the total number of tax regimes that have been reviewed, or are under review, is 317. The reviews were undertaken by the Forum on Harmful Tax Practices (FHTP). Of the nine regimes covered in this update, none were classified to be harmful and the rest have been abolished, are in the process of being amended, are under review or are considered to be not harmful. The Inclusive Framework will continue its reviews and will provide periodic updates.

Detailed discussion


In an effort to realign the taxation of profits with the substantial activities that generate them, and to improve transparency, the OECD started work on addressing harmful tax practices in the late 1990s, resulting in a 1998 report, Harmful Tax Competition: An Emerging Global Issue.

Under this initiative, the OECD also created the FHTP, which has a mandate to monitor and review tax practices of jurisdictions, focusing on the features of preferential tax regimes. The Code of Conduct Group on Business Taxation in the European Union (EU) performs a similar role.1

On 5 October 2015, the OECD released its final report on Action 5, Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance (the Action 5 Report) under its BEPS Action Plan.2 The Action 5 Report covers two main areas: (i) applying the “substantial activity” criterion when determining whether tax regimes are harmful; and (ii) improving transparency. The Action 5 Report also includes a strategy to expand the review of preferential regimes to third countries beyond the OECD/G20 countries.

This expansion has been executed through the Inclusive Framework on BEPS, which currently has 141 member jurisdictions.3 Each of the member jurisdictions has committed to the 2015 BEPS package and its effective implementation, including fulfilling the minimum standard on Action 5. This means that the preferential tax regimes of Inclusive Framework member jurisdictions have been, are being or will be reviewed based on the Action 5 criteria, including the new criteria on substance and transparency.

The OECD published the 2017 Progress Report on Action 5 in October 2017.Since then, the FHTP has continued its work on the review of preferential regimes within the scope of BEPS Action 5:

  • In May 2018, the OECD released updates to the results of the reviews of 11 preferential tax regimes.
  • On 15 November 2018, the OECD released updated results covering the assessment of 53 preferential tax regimes. On the same date, the OECD also released guidance on the application of the substantial activity requirement for “no or only nominal tax” jurisdictions.5
  • On 29 January 2019, the OECD released the 2018 Progress Report, reflecting the FHTP’s review of 255 regimes in total since the start of the BEPS project.6
  • On 23 July 2019, the OECD released an update to the results of the reviews for 56 preferential tax regimes.This update also includes, for the first time, the results of the review of 12 identified no or only nominal tax jurisdictions. The FHTP concluded that the legislative frameworks of 11 jurisdictions are not harmful. For the United Arab Emirates, the FHTP concluded that as of June 2019 there was one technical point outstanding and the legislation was reported as “in the process of being amended.”
  • On 23 November 2020, the OECD released an update to the results of the reviews for 49 preferential tax regimes.8 Also, the OECD updated the conclusion on the one no or only nominal tax jurisdiction.
  • On 5 August 2021, the OECD released an update to the results of reviews for 18 preferential tax regimes.9
Updated conclusions of the preferential tax regimes review

On 24 January 2022, the OECD released an update to the results of the reviews for nine preferential tax regimes, which had been approved by the Inclusive Framework on BEPS on 18 January 2022. The new results on preferential regimes follows the conclusion from the FHTP meeting held in November 2021.

The following regimes were reviewed and classified as not harmful, abolished, amended or committed to or in process to be amended:

  • Hong Kong: Profits tax concession for carried interest. This new regime was designed in compliance with the FHTP standards.

  • Lithuania: The regime “Large scale investment projects” has non-intellectual property (IP) and IP-related components. The non-IP component of this regime was considered out of scope because no benefits for income from geographically mobile activities were found. As for the IP-related component, it is considered to be not harmful because it is compliant with FHTP standards.

  • Mauritius: Foundations and Trusts regimes. Both regimes have been abolished and the grandfathering is in accordance with FHTP timelines.

  • Qatar: Exemptions and concessionary rate under Qatar financial centres; Free zones at science & technology parks; and Free zone areas. The three regimes have substance requirements in place.

In addition, the updated results shows that the regime of Costa Rica (free trade zone) is “in the process of being amended.” Finally, the regime from Albania (Industries incentive (software production / development)) is “under review.”

To date, the FHTP has reviewed a total of 317 tax regimes and made the following determinations:

  • One of these regimes is currently harmful.
  • Nine regimes are potentially harmful but not actually harmful.
  • 124 regimes are not harmful.
  • 15 regimes are in the process of being eliminated or amended.
  • Three regimes are not operational.
  • 110 regimes have been abolished.
  • 39 regimes have been found to be out of scope.
  • 13 regimes are still under review.
  • The remaining three regimes relate to disadvantaged areas.
Next steps

The FHTP will continue its reviews of the tax regimes that have been identified and also may identify additional regimes to review. In addition, the FHTP will continue its annual monitoring on specific aspects of regimes.


The updated results of the review of preferential tax regimes underscore that the Inclusive Framework is continuing its focus on jurisdictions’ implementation of the BEPS Action 5 minimum standard despite the ongoing BEPS 2.0 project.10 However, it is not clear how these two initiatives will interact with each other in the future.

The release of the updated results provides information to taxpayers on the status of preferential regimes in jurisdictions in which they may operate. In addition, it may inform the assessments11 to be made by the EU Code of Conduct Group, which in turn may have a direct impact on taxpayers (e.g., through updates to the EU list of non-cooperative jurisdictions for tax purposes and the tax measures that refer to such list). The next update by the EU is expected in February 2022.

Businesses should monitor possible legislative changes with respect to regimes that may be reviewed by the FHTP and that are relevant to them as well as the work carried on by the EU Code of Conduct Group.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Ronald van den Brekel
  • Marlies de Ruiter
  • Maikel Evers 
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • David Corredor-Velásquez 

  • Konstantina Tsilimigka 

  • Roberto Aviles Gutierrez 

Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos 
Ernst & Young LLP (United States), Washington, DC
  • Barbara M. Angus 

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert