Action 6 Prevention of tax treaty abuse

Minimum Standard

BEPS Action 6 addresses treaty shopping through treaty provisions whose adoption forms part of a minimum standard that members of the BEPS Inclusive Framework have agreed to implement. It also includes specific rules and recommendations to address other forms of treaty abuse. Action 6 identifies tax policy considerations jurisdictions should address before deciding to enter into a tax agreement.

Action overview


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What is the issue?

Over the last decades, bilateral tax treaties, concluded by nearly every jurisdiction in the world, have served to prevent harmful double taxation and remove obstacles to cross-border trade in goods and services, and movements of capital, technology and persons. This extensive network of tax treaties (3000 to 4000 treaties in force worldwide) has, however, also given rise to treaty abuse and so-called "treaty-shopping" arrangements.

Treaty shopping typically involves the attempt by a person to indirectly access the benefits of a tax treaty between two jurisdictions without being a resident of one of those jurisdictions. There are a wide number of arrangements through which a person who is not a resident of a jurisdiction that is a party to a tax agreement may attempt to obtain benefits that a tax agreement grants to a resident of that jurisdiction.

Taxpayers engaged in treaty shopping and other treaty abuse strategies undermine tax sovereignty by claiming treaty benefits in situations where these benefits were not intended to be granted, thereby depriving jurisdictions of tax revenues.


Why does it matter?

Treaty abuse is one of the most important sources of BEPS concerns. It is undesirable for several reasons, including:

  • Treaty benefits negotiated between the parties to a treaty are economically extended to residents of a third jurisdiction in a way the parties did not intend. The principle of reciprocity is therefore breached and the balance of concessions that the parties make is altered;
  • Income may escape taxation altogether or be subject to inadequate taxation in a way the parties did not intend; and
  • The jurisdiction of residence of the ultimate income beneficiary has less incentive to enter into a tax treaty with the jurisdiction of source, because residents of the jurisdiction of residence can indirectly receive treaty benefits from the jurisdiction of source without the need for the jurisdiction of residence to provide reciprocal benefits.

What are we doing to solve it?

As part of the BEPS package, the Action 6 Report sets out one of the four BEPS minimum standards, which is that members of the BEPS Inclusive Framework commit to include in their tax treaties provisions dealing with treaty shopping to ensure a minimum level of protection against treaty abuse. They also agreed that some flexibility in the implementation of the minimum standard is required as these provisions need to be adapted to each jurisdiction’s specificities and to the circumstances of the negotiation of tax agreements.

The minimum standard on treaty shopping requires jurisdictions to include two components in their tax agreements: an express statement on non-taxation (generally in the preamble) and one of three methods of addressing treaty shopping.

The Action 6 Report sets out other specific rules and recommendations to address other forms of treaty abuse.

To foster the implementation of the minimum standard and other BEPS treaty-related measures in the global treaty network, a Multilateral Instrument (the BEPS MLI) that can modify existing bilateral tax agreements was concluded.

The implementation of the Action 6 minimum standard is subject to a peer review process. The first three peer reviews on the implementation of the Action 6 minimum standard were carried out in 2018, 2019 and 2020, following the process set out in the Peer Review Document (2017). The peer reviews for 2021, 2022 and 2023 were governed by a revised peer review methodology set out in the Revised Peer Review Document (2021). The peer review for 2024 onwards will be governed by a further revised peer review methodology set out in the Revised Peer Review Documents (2024). 

The BEPS Action 6 Revised Peer Review Documents (2024) include the Terms of Reference which set out the criteria for assessing the implementation of the minimum standard, and the methodology which sets out the procedural mechanism by which the review will be conducted. Members of the Inclusive Framework on BEPS approved these Revised Peer Review Documents which are an updated version of the 2021 Peer Review Documents, in 2024. Paragraph 30 of the Revised Peer Review Documents (2021) provided that the methodology would be reviewed as necessary, with the expectation that the next review would be carried out in 2026.  In light of the successful implementation of the minimum standard to date, the methodology has been revised to provide for ongoing targeted assistance to those members of the Inclusive Framework that still need to implement the Action 6 minimum standard, with a comprehensive peer review process to be carried out once every five years.

Peer reviews

What are the results so far?

The latest peer review on the implementation of the Action 6 minimum standard reveals that a large majority of Inclusive Framework members have modified, or are in the process of modifying, their treaty network to implement the minimum standard and other BEPS treaty-related measures.

As in previous editions, the latest peer review report continues to demonstrate the efficiency of the BEPS Multilateral Instrument (BEPS MLI) in implementing the minimum standard. It is by far the main tool of Inclusive Framework members for implementing the minimum standard. The majority of the jurisdictions that have signed the BEPS MLI have listed almost all their treaties to be covered under the BEPS MLI.

The provisions of the BEPS MLI have started to take effect with respect to treaties concluded by pairs of jurisdictions that have signed and ratified the BEPS MLI. For the treaties for which the BEPS MLI is effective, tax administrations can now use effective treaty provisions to put an end to treaty shopping.

More on the BEPS MLI

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Action specific content


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The Action 6 minimum standard


As set out in paragraphs 22 and 23 of the Final Report on Action 6, jurisdictions have agreed to include in their tax agreements an express statement that their common intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. The following preamble now appears in the 2017 OECD Model Tax Convention:

Intending to conclude a Convention for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States)



Jurisdictions have also committed to implement that “common intention” through the inclusion of treaty provisions in one of the following three forms:

  1. a principal purpose test (PPT) equivalent to paragraph 9 of Article 29 of the 2017 OECD Model Tax Convention together with either a simplified or a detailed version of the limitation on benefits (LOB) rule that appears in paragraphs 1 to 7 of the 2017 OECD Model; or
  2. the PPT alone; or
  3. a detailed version of the LOB rule together with a mechanism (such as a treaty rule that might take the form of a PPT rule restricted to conduit arrangements, or domestic anti-abuse rules or judicial doctrines that would achieve a similar result) that would deal with conduit arrangements not already dealt with in tax treaties.

Previous attempts to tackle treaty shopping

Concerns about treaty shopping are not new. In 1977, the concept of “beneficial owner” was introduced into the dividends, interest, and royalties articles of the OECD Model Tax Convention to clarify the meaning of the words “paid to”, and deal with simple treaty-shopping situations where income is paid to an intermediary resident of a treaty country who is not treated as the owner of that income for tax purposes (such as an agent or nominee).

In 1977, the Commentary on Article 1 of the OECD Model was also updated to include a section on the improper use of tax agreements. In 1986, the Committee on Fiscal Affairs (CFA) published two reports: Double Taxation and the Use of Base Companies and Double Taxation and the Use of Conduit Companies. In 2002, the Committee published the report, Restricting the Entitlement to Treaty Benefits. The Commentary on Article 1 was expanded on several occasions, notably in 2003, with the inclusion of sample provisions that countries could use to counter treaty shopping.

A review of jurisdiction practices shows that they have tried to address treaty shopping in the past and have used different approaches to do so. Some have relied on specific anti-abuse rules based on the legal nature, ownership, and general activities of residents of a jurisdiction party to a tax agreement. Others have favoured a general anti-abuse rule based on the purpose of transactions or arrangements.

Model Tax Convention