What is Base Erosion and Profit Shifting (BEPS)

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Base Erosion and Profit Shifting (BEPS), is not a concept which we hear very often. However this is not a concept or rather a issue came up to discussion in recent years.

BEPS refers to tax planning strategies that exploit tax loopholes to artificially shift profit to places where low or no tax is exercised or erode tax bases through deductible payments.

Organisation for Economic Co-operation and Development (OECD) is the organization which has put the initial foundation towards avoiding BEPS.

How and why BEPS Concept came up

After the financial crisis which was happened in 2008 , the G20 Countries focused much about the tax payments. Then they started to fight against the most famous "Tax Evasion" and " Tax Avoidance" happend all over the world.

Thus Organisation for Economic Co-operation and Development (OECD) took the initiative to reduce the gaps in international taxation for companies that intentionally avoid taxation and a reduction in tax burden in their base country which by normally shifting  the operations to a country where there is a less tax burden.

Further some companies even migrate their Intangibles to jurisdictions where low tax rates can be seen.

What is the action plan introduced by OECD to overcome BEPS

You know that current business world is very dynamic and channging in a rapid way. Thus avoiding base erosion and profit shifting needs a very good understanding on the modern business models.

However with G20 countries , OECD introduced a action plan to avoid BEPS.

Following are the main 15 actions which they have highlighted in the action plan.

1. Address the tax issues and challenges coming from digital economy and business
2. Minimizing the effect of Hybrid mismatch arrangements which is used for BEPS and cross broader trade and investment agreements.
3. To build a control on foreign companies to avoid shifting of profit to lower ta countries.
4. Limiting interest deduction to entity's economic activity
5. Avoiding harmful tax practices to improve transparency
6. Prevention of tax treaty (Double Tax ) abuses
7. To avoid the prevention of artificial permanent establishment status
8 to 10. Incorporating proper transfer pricing techniques
11. Developing BEPS data analysis globally
12. Placing mandatory disclosure rules regarding taxation.
13. To improve tax transparency by introducing country by country tax reporting
14. Making the dispute resolution process of jurisdictions more effective
15. Multilateral instruments to implement the double taxation related BEPS recommendations

Above 15 actions were introduced by OECD in 2015 with the support of G20 countries.

If you are interested more on learning about BEPS - Click here to go to OECD Official Website

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References and Sources used to Write the Article

• OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing.
• http://www.oecd.org/tax/beps/beps-actions/

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Article Written By : H.Harshana Sameeraka ( Bsc Accounting (Special) First Class (Gold Medal Winner), CA Passed Finalist with pending Viva(Prize Winner), Reading For CIMA SCS, Audit Supervisor KPMG)

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