Tackling Base Erosion and Profit Shifting (BEPS)
The Organization for Economic Cooperation and Development (OECD), a non-governmental forum established to promote economic growth, has developed a 15-point action plan
to shape “fair, effective and efficient tax systems.” The OECD’s project regarding base erosion and profit shifting has addressed issues arising from tax planning strategies that exploit gaps or mismatches in member countries’ tax rules.
In an increasingly interconnected world, national tax laws have not always kept pace with global corporations, fluid movement of capital, and the rise of the digital economy, leaving gaps and mismatches that can be exploited to generate double non-taxation. This undermines the fairness and integrity of tax systems.
Base Erosion and Profit Shifting refers to tax planning strategies that exploit these gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).