Base Erosion and Profit Shifting
Q. Base Erosion and Profit Shifting means- Published on 14 Mar 16a. Get benefits by investing profit within country due to differential interest rates
b. Pay lower taxes or avoid taxes altogether
c. Have interest rates higher than base rates
d. None of the above
ANSWER: Pay lower taxes or avoid taxes altogether
- Base Erosion and Profit Shifting (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 simple terms it means to shift profits across borders to take advantage of tax rates that are lower than in the country where the profit is made.
- Three popular mechanisms for doing this are hybrid mismatches, special purpose entities (SPE), and transfer pricing.
