Base erosion and profit shifting

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Tax - anti-avoidance.


Tax payer action that reduces the taxable profit in a jurisdiction, either by recharacterising it or by shifting it to a jurisdiction where it will be taxed at a lower rate or not taxed at all.

This is seen by tax authorities as potentially abusive, even if legal.

Action Plan on Base Erosion and Profit Shifting is a 2013 report from the Organisation for Economic Co-operation and Development (OECD). The outline Action Plan proposals were endorsed by the G20 during their summit in St. Petersburg in 2013.

The OECD report notes:

  • that modern business practices, the growing importance of the services and 'digital' components of the economy mean that many businesses are geographically distant from their customers and
  • "the increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning".

These, the report says, provide multinational enterprises (MNEs) with more confidence in taking aggressive tax positions giving opportunities for the MNEs to greatly minimise their tax burden.

"The increasing BEPS relates chiefly to instances where the interaction of different tax rules leads to double non-taxation or less than single taxation. It also relates to arrangements that achieve no or low taxation by shifting profits away from the jurisdictions where the activities creating those profits take place."

See also

Other resource