The integration of national economies and markets has increased substantially in recent years, putting a strain on the international tax rules, which were designed more than a century ago. Weaknesses in the current rules create opportunities for base erosion and profit shifting (BEPS), requiring bold moves by policy makers to restore confidence in the system and ensure that profits are taxed where economic activities take place and value is created.

Action 6 of the BEPS Project identified treaty abuse, and in particular treaty shopping, as one of the principal sources of BEPS concerns. Owing to the seriousness of treaty shopping, jurisdictions have agreed to adopt, as a minimum standard, measures to address it, and to subject their efforts to an annual peer review. In 2018, the first peer review concluded that although few of the reported agreements met the minimum standard, many jurisdictions had begun in earnest to tackle the problem, principally by signing the multilateral instrument Formally, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. (MLI).

The minimum standard requires jurisdictions to do two things in their tax treaties: include an express statement on non-taxation (generally in the preamble); and adopt one of three methods of addressing treaty shopping. It does not specify how these two things should be achieved (e.g. through the MLI or bilaterally). The Action 6 Final Report further states that (i) a jurisdiction is required to implement the minimum standard in a treaty only if asked to do so by another member of the Inclusive Framework Para. 23, OECD (2015), Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264241695-en (the "BEPS Action 6 Report"): “Countries commit to adopt in their bilateral treaties measures that implement the minimum standard described in the preceding paragraph if requested to do so by other countries that have made the same commitment and that will request the inclusion of these measures.” The Inclusive Framework of committed jurisdictions had not yet been established.; (ii) the decision on which of the three methods to adopt has to be agreed (a solution cannot be imposed); and (iii) reflecting treaties’ bilateral nature, there is no time limit within which a jurisdiction has to attain the minimum standard.

The data collected with respect to the implementation of the Action 6 minimum standard show that, by 30 June 2019, 91 Inclusive Framework members had begun to update their bilateral treaty network and were implementing the minimum standard. The MLI had, by that same date, already modified around 60 bilateral agreements. The MLI was not in force at the time of the first peer review. The MLI’s impact is expected to increase quickly as jurisdictions ratify it and additional jurisdictions with large tax treaty networks join the MLI. As set out above, Bahrain, Jordan, Lebanon, North Macedonia, Thailand and Viet Nam, jurisdictions with large tax treaty networks, have expressed their intention to join the MLI in the future.

The peer review also provided a way for a jurisdiction that encountered difficulties in reaching agreement with another jurisdiction to implement the Action 6 minimum standard an opportunity to raise its concerns in writing to the Secretariat.

The implementation of the minimum standard will continue to be monitored and, as set out in the Peer Review Document, the next peer review exercise will be launched in the first half of 2020.