Base erosion and profit shifting
Kartavya Desk Staff
Source: OECD
Context: The 16th meeting of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) concluded
• An inclusive framework on BEPS is finalizing negotiations on Pillar One, while the Global Minimum Tax under Pillar Two is being implemented in countries globally
What is an Inclusive Framework?
The OECD/G20 Inclusive Framework on BEPS, with 147 countries and jurisdictions including India, fights tax avoidance and promotes fair tax practices through a Two-pillar approach: Pillar One reallocates profits of large MNEs, while Pillar Two establishes a Global Minimum Corporate Tax of 15%. This framework ensures fairness in tax systems, addresses tax avoidance, and adapts to evolving business models and digital economies.
What is BEPS?
• It refers to corporate tax planning strategies used by multinationals to shift profits from higher-tax jurisdictions to lower or no-tax jurisdictions.
• The OECD defines BEPS strategies as exploiting gaps and mismatches in tax rules. It erodes the tax base (costing countries USD 100-240 billion in lost revenue annually) of the higher-tax jurisdictions.
• As developing countries have a higher reliance on corporate income tax, they suffer from BEPS disproportionately.
• Working together within the OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on – The implementation of measures to tackle tax avoidance, Improving the coherence of international tax rules and Ensuring a more transparent tax environment.
• The implementation of measures to tackle tax avoidance,
• Improving the coherence of international tax rules and
• Ensuring a more transparent tax environment.
The objective of the Outcome Statement: It delivered a package to further implement the Two‐Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.
Two‐Pillar Solution/ Global Anti-Base Erosion (GloBE) rules: These rules were agreed upon in 2021 by 137 countries and jurisdictions under the OECD/G20 Inclusive Framework on BEPS.