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BEPS Action 6: Preventing treaty abuse
On 22 May 2015, the OECD, as part of its work on the action plan to address base erosion and profit shifting (BEPS), released a revised discussion draft (the draft) on Action 6 in relation to preventing the granting of treaty benefits in inappropriate circumstances. As with other discussion drafts on BEPS actions, the proposals do not represent a consensus view from the G20/OECD governments involved.
The draft maintains the minimum standard (with three options) as to how countries can put in place a minimum level of protection against treaty abuse. Of note is the introduction of two new provisions which will allow the source country to remove treaty benefits and instead apply domestic law: this could apply where income is subjected to a “special tax regime” (a preferential effective tax rate in the residence country) or where, after the treaty is signed, one of the states provides an exemption on certain foreign source income.
The Australian Government announced in the 2015-16 Budget that it will be supportive of the OECD recommendations on Action 6 and that these recommendations will be incorporated into Australian tax treaty practice.