Harmful Tax Practices – 2023 Peer Review Reports on the Exchange of Information on Tax Rulings

395. The Faroe Islands can legally issue the following two types of rulings within the scope of the transparency framework: (i) preferential regimes1 and (ii) permanent establishment rulings.

396. For the Faroe Islands, past rulings are any tax rulings issued prior to 1 September 2019. However, there is no obligation for the Faroe Islands to conduct spontaneous exchange information on past rulings.

397. For the Faroe Islands, future rulings are any tax rulings within scope that are issued on or after 1 September 2019.

398. In the prior years’ peer review reports, it was noted that Faroe Islands requires all taxpayers that apply for rulings on preferential regimes to provide information on the related parties, the immediate parent entity and the ultimate parent entity. However, this information was not required for permanent establishment rulings and the Faroe Islands was recommended to identify potential exchange jurisdictions with respect to permanent establishment rulings as soon as possible. During the year in review, the Faroe Islands noted that the requirement to provide relevant information for permanent establishment rulings has been introduced starting 30 October 2023. As the issue has been addressed, the prior year’s recommendation is now removed.

399. During the year in review, the Faroe Islands had issued three rulings on preferential regimes, for which it had not yet collected all information on the related parties, the immediate parent entity and the ultimate parent entity. For one ruling issued in October 2023, the information has been collected. For two rulings issued in December 2023, information has been requested. This will be monitored in next year’s peer review report.

400. In the prior year’s peer review report, it was determined that Faroe Islands’ review and supervision mechanism was sufficient to meet the minimum standard. Faroe Islands’ implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

401. The Faroe Islands has met all of the ToR for the information gathering process and no recommendations are made.

402. The Faroe Islands has the necessary domestic legal basis to exchange information spontaneously. The Faroe Islands notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

403. The Faroe Islands has international agreements permitting spontaneous exchange of information, including: (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011[2]) (“the Convention”), (ii) the Nordic Convention on Assistance in Tax Matters, and (iii) bilateral agreements in force with four jurisdictions.2

404. In the prior years’ peer review reports, it was determined that the Faroe Islands is still developing a process to complete the templates on relevant rulings, to make them available to the Competent Authority for exchange of information, and to exchange them with relevant jurisdictions. Therefore, the Faroe Islands was recommended to develop a process to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur in accordance with the form and timelines under the transparency framework going forward.

405. During the year in review, the Faroe Islands took steps to implement a process on the completion and exchange of templates. TAKS requires the department issuing the ruling to complete the Annex C template. Department managers are responsible that the template is filled out correctly, and that the summary section of the Annex C template is in line with the internal FHTP suggested guidance. The Competent Authority is responsible for the exchanges. The relevant department issuing the ruling is required to inform the Competent Authority within three months of the date that the ruling was issued. However, the Faroe Islands has not yet put a timeline in place for the exchange of the information on rulings by the Competent Authority. The Faroe Islands reports that it will put this timeline, in line with the Action 5 transparency framework, in place in 2024. This will be assessed in next year’s review.

406. As no exchanges took place in the year of review, no data on the timeliness of exchanges can be reported. The Faroe Islands has reported that all exchanges took place in 2024 which will be considered in next year’s peer review report.

407. The Faroe Islands is recommended to put in place a process to ensure that the exchanges of information on rulings occur in accordance with timelines under the transparency framework going forward (ToR II.B.6).

408. As there was no information on rulings exchanged by the Faroe Islands for the year in review, no statistics can be reported.

409. The Faroe Islands does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015[3]) were imposed.

[1] OECD (2021), BEPS Action 5 on Harmful Tax Practices - Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD Publishing, Paris, http://www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparency-framework.pdf.

[3] OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241190-en.

[2] OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris, https://doi.org/10.1787/9789264115606-en.