Base Erosion and Profit Shifting (BEPS) Explained

With the recent news coverage of the European Commission’s focus on the tax affairs of certain global corporations and much talk about BEPS you might be wondering what exactly it means.

What is Base Erosion and Profit Shifting (“BEPS”)?

BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low, resulting in little or no overall corporate tax being paid.

The BEPS project was designed by the OECD and saw it engaging with developing countries and non-OECD/G20 economies in order to accomplish a set of actions, as outlined in the OECD’s  Action Plan to Address Base Erosion and Profit Shifting.

There are 15 actions to address BEPS in a comprehensive manner with deadlines for implementation in 2014 and 2015. Other deadlines in 2014 refer to further reports being published. The international tax planning rules are the driving force behind some of the BEPS Actions.

Deliverables:

The BEPS Action Plan provides for 15 Actions scheduled to be finalised in three phases: September 2014, September 2015 and December 2015. A summary of the 15 Action Plan is detailed here. The OECD, on the 16th September 2014, released the first seven of the 15 deliverables under the BEPS project. The deliverables were presented to the G20 Finance Ministers at their meeting in September in Cairns, Australia, for formal official approval.