What is corporate profit shifting?

Corporate profit shifting is the tax strategy used by multinational companies to reduce their taxes. It involves shifting their taxable profits from the country where it earns the profits to another country which could be a tax haven or have reduced tax rates when compared to the country where the company earns its profits. You can read about the Base Erosion and Profit Shifting (BEPS) – Issues, Measures taken by India in the given link.

Corporate profit shifting is a big problem faced by the developing countries as they are heavily dependent on corporate taxes. OECD has come up with a Base Erosion and Profit Shifting (BEPS) project to handle this problem. Corporate tax shifting is not illegal because it mainly utilises the different tax rules and loopholes in the taxation system.

Further readings:

  1. Taxation in India – Direct taxes, Indirect Taxes, Features of Taxation System
  2. Organisation for Economic Co-operation and Development [OECD] – Objectives, Member Countries, Responsibilities

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