Base Erosion and Profit Shifting (BEPS) Simplified

Base Erosion and Profit Shifting or commonly called BEPS is a malpractice by which companies hide their profits and save on taxes they were liable to pay.

How does BEPS work? Well, the multi-national companies setup themselves in two or more countries and then then try to show the majority of profit out of their net profit in a country where they have to pay the minimum taxes. In this way, they save largely on the taxes they have to pay. They bypass the technical barriers by showing goods and services being bought from one company to another to shift their costs and revenues whereas in reality it is the same company buying its own goods and services.

A recent or best example of curbing this bad practice by the MNCs is the introduction of strict rules for companies operating in Mauritius and India. These companies were saving their taxes by abusing the double taxation avoidance treaty signed between Indian and Mauritius. While the treaty was there to help companies avoid paying taxes in both countries, the companies in India with their dummy companies setup in Mauritius were completely avoiding the taxes to be paid in India. It has been an open truth for a long time but it is only now that the Government of India has acted upon it.

Let's have some important technical information as well which may come handy for various competitive exams:

• BEPS is implemented by OECD (Organisation for Economic Co-operation and Development)
• OCED and G20 nations are developing standards for BEPS
• There are at present 34 nations who are part of OCED.

The Wikipedia on BEPS is well written and full of important links: https://en.wikipedia.org/wiki/Base_erosion_and_profit_shifting