What is meant by base erosion and profit shifting?

With the intention of avoiding paying tax, tax strategies are used by multinational companies by exploiting the loopholes in the tax rules. This is known as base erosion and profit shifting (BEPS). As developing countries are heavily reliant on corporate income tax, the BEPS is more prevalent in developing countries. You can read about the Financial Stability and Development Council (FSDC) – UPSC Notes in the given link.

To tackle the problem of BEPS, the Union Budget of 2016 in India had made an announcement about equalisation levy. The Organization for Economic Cooperation and Development (OECD) countries have decided to revise tax treaties, revise tax rules and have issued a plan of action. 

Further readings:

  1. Global Financial Stability Report 2020 – GFSR Report By IMF
  2. Financial Stability Report (FSR) 2020 – An Overview of Biannual RBI Report

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