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John Bateson BSc (Hons), F.C.I.S., F.I.C.A.

Base Erosion and Profit Shifting

Posted by John Bateson BSc (Hons), F.C.I.S., F.I.C.A. on 20th April 2016

What is BEPS?

BEPS refers to tax planning strategies that exploit these gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).

In an increasingly interconnected world, national tax laws have not always kept pace with global corporations, fluid movement of capital, and the rise of the digital economy, leaving gaps and mismatches that can be exploited to generate double non-taxation. This undermines the fairness and integrity of tax systems. 

The potential magnitude of the BEPS problem estimates annual losses of anywhere from 4 - 10% of global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually.

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