Base Erosion and Profit Shifting (BEPS) describes a range of tax planning techniques by which multinational enterprises (MNEs) shift reported profits from higher-tax jurisdictions where economic activity occurs to lower-tax or no-tax jurisdictions, thereby eroding the tax base of the former. Common mechanisms include manipulated transfer pricing between affiliates, intra-group debt loading, treaty shopping, hybrid mismatch arrangements, and the parking of intangible assets (patents, trademarks) in low-tax holding companies.
The term gained prominence after the OECD and G20 launched the BEPS Project in 2013, producing a 15-Action Plan in October 2015. The actions covered, among other things, the digital economy (Action 1), hybrid mismatches (Action 2), controlled foreign company (CFC) rules (Action 3), interest deductibility limits (Action 4), harmful tax practices (Action 5), treaty abuse (Action 6), permanent establishment status (Action 7), transfer pricing (Actions 8–10), and country-by-country reporting (Action 13).
To implement treaty-related measures, the Multilateral Instrument (MLI) was adopted in 2016 and opened for signature in 2017, allowing signatories to amend bilateral tax treaties simultaneously. Implementation is monitored through the Inclusive Framework on BEPS, which by the early 2020s included more than 140 jurisdictions.
A second phase, often called BEPS 2.0, addresses tax challenges arising from digitalisation through two pillars:
- Pillar One reallocates a portion of taxing rights on the largest and most profitable MNEs to market jurisdictions.
- Pillar Two establishes a global minimum corporate tax rate of 15% via the Global Anti-Base Erosion (GloBE) rules, agreed in principle by the Inclusive Framework in October 2021.
The OECD has estimated annual revenue losses from BEPS at roughly USD 100–240 billion, equivalent to 4–10% of global corporate income tax receipts. Critics, including the Independent Commission for the Reform of International Corporate Taxation (ICRICT) and several developing-country governments, argue the BEPS framework still favours capital-exporting states and leaves source countries under-compensated.
Example
In October 2021, more than 130 jurisdictions in the OECD/G20 Inclusive Framework agreed to a 15% global minimum corporate tax under Pillar Two of the BEPS 2.0 project to curb profit shifting by firms such as large tech multinationals.
Frequently asked questions
The OECD, working jointly with the G20 and the Inclusive Framework on BEPS, which by the early 2020s comprised over 140 participating jurisdictions.
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