This tables shows information on intellectual property (IP) regimes reviewed by the OECD’s Forum on Harmful Tax Practices (FHTP). IP regimes allow income from the exploitation of IP to be taxed at a lower rate than the standard statutory tax rate.
IP regimes can be regimes that exclusively provide benefits to income from IP, but some preferential regimes categorised as IP regimes are “dual category” regimes. These regimes also provide benefits to income from other geographically mobile activities or provide benefits to a wide range of activities and do not necessarily exclude income from IP. The table shows information both on regimes that narrowly target IP income and on regimes that offer reduced rates to IP income and other types of income.
As agreed as part of the BEPS Action 5 minimum standard, peer reviews are undertaken to identify features of IP regimes that can facilitate base erosion and profit shifting (BEPS) and therefore have the potential to unfairly impact the tax base of other jurisdictions. The Action 5 Report placed a renewed focus on requiring substantial activity for any preferential regime, and the “nexus approach” is the substantial activity requirement developed for IP regimes. The nexus approach requires a link between the income benefiting from the IP regime and the extent to which the taxpayer has undertaken the underlying R&D that generated the IP asset. In addition to the nexus approach, features of regimes such as ring-fencing from the domestic economy and a lack of transparency are also considered in the peer reviews.
On the basis of the features of the regime, IP regimes are found to be either: harmful (because they do not meet the nexus approach), not harmful (when the regime does meet the nexus approach and other factors in the review process), or potentially harmful (when the regime does not meet the nexus approach and/or other factors in the review process, but an assessment of the economic effects has not yet then place). The peer review process is ongoing, and in 2018 many jurisdictions were in the process of amending or abolishing their regimes to ensure that they are fully aligned with the Action 5 minimum standard. These are listed with the status “in the process of being amended/eliminated”, and are expected to be closed to new entrants in 2018. Regimes that were already closed to new entrants in 2018 (according to the peer reviews approved by the Inclusive Framework in November 2018) are listed as “abolished” in the database, although continuing benefits may be offered for a defined period of time to companies already benefiting from the regime. In most cases, this grandfathering would end by 30 June 2021.