Base Erosion and Profit Sharing (BEPS) has emerged as one of the most important challenges for the governments across the world today. Critically examine in the light of G20- OECD's BEPS Action Plan and the recently released BEPS Package.
Base Erosion and Profit Shifting (BEPS) refers to those instances where gaps between different tax rules or bilateral treaties leads to tax avoidance causing harm to the government. This is mainly done by help of Transfer pricing, which allows lowering or increasing the prices between parent-daughter entities at different locations. Since, the corporate taxes are based on income made by a company. The companies artificially increase or decrease the transfer price; thus artificially increasing their expenditure and reducing income to avoid corporate tax.
Though, the LPG policy has led the shift of manufacturing base from high cost to low cost locations, gradual removal of the trade barriers and rise of digital economy but, still taxation remains at the core of countries’ sovereignty. But, in recent years, multinational companies have avoided taxation in their home countries by pushing activities abroad to low or no tax jurisdictions.
To cope up with the problem, the G20 and OECD are working hand in hand. Also, In 2015, OECD has released a Base Erosion and Profit Shifting (BEPS) package containing final reports on 15 identified focus areas. This report includes recommendations for significant changes in the key elements of international tax architecture and is expected to come out with a multilateral convention to prevent the treaty abuses by 2016. (208 words)