Knowra Base Erosion and Profit Shifting Base Erosion and Profit Shifting Base erosion and profit shifting (BEPS) describes strategies that exploit mismatches and gaps between tax systems to shift taxable profits away from where economic activity occurs, reducing tax liabilities.
Transfer pricing : Rules for valuing transactions between related entities, including companies within the same multinational group. Prices for intragroup goods, services, and intellectual property can shift profits between jurisdictions.
OECD : An intergovernmental organization that promotes economic cooperation and develops policy standards among member and partner countries. The OECD organized the principal international BEPS negotiations and guidance.
Country-by-country reporting : A reporting requirement under which large multinational groups disclose revenue, profit, taxes, and other indicators by jurisdiction to tax authorities. Jurisdiction-level data helps tax authorities assess whether reported profits align with business activity.
Tax competition : Competition among governments to attract investment or economic activity through tax rates, incentives, or other policies. BEPS rules constrain some strategies based on low effective tax rates while leaving governments room to compete.
Pillar One : An OECD/G20 proposal to reallocate some taxing rights over the profits of large multinational enterprises to market jurisdictions. It addresses the allocation of taxing rights, a distinct challenge from Pillar Two’s minimum-tax floor.
Treaty shopping : Arranging cross-border investments through an intermediary jurisdiction to obtain benefits under a tax treaty. Intermediary entities can channel income toward reduced withholding taxes or treaty protections.
OECD/G20 Base Erosion and Profit Shifting Project : A 2013–2015 international initiative that developed coordinated measures against tax-base erosion and profit shifting. Its action plan established the framework that gave BEPS its current policy meaning.
Principal purpose test : A treaty rule that can deny a tax benefit when obtaining that benefit was one of the principal purposes of an arrangement. It targets treaty-benefit arrangements that lack sufficient commercial justification.
Tax avoidance : The use of legal arrangements to reduce tax liabilities, distinguished from illegal tax evasion. BEPS is a subset of cross-border tax avoidance involving gaps between jurisdictions’ rules.
Tax sovereignty : A state’s authority to design and administer its own tax system within its legal and international commitments. Coordinated BEPS standards raise questions about how much national discretion tax cooperation should constrain.
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