Basic Erosion and Profit Shifting (BEPS)

Marco Lupi

doi:10.4236/blr.2020.111007

Abstract

By Basic Erosion and Profit Shifting (BEPS) we mean the set of fiscal nature strategies that some companies put in place to erode the tax base (heroes base) and therefore deduct taxes from the tax authorities. The transfer of profits (profit shifting) from high-imposition countries to countries with no or reduced taxation is, in fact, itself a strategy that leads to the erosion of the tax base. Such practices are allowed: from aggressive tax strategies in contexts with a high rate of innovation, digitalization and globalization; from the rigidity of tax systems in the face of extreme “flexibility of corporate income”; from the possibility of separating the imposition of income sources from the economic activities that generate them; by the absence of coordination and by the presence of asymmetries between the different national tax regimes, for example in terms of a different treatment (for tax purposes) of the components of the company balance sheet (interest, dividends, etc.) and a non-uniform evaluation of the recurring items associated with intra-group and non-group transactions. The aim of this paper is to examine the new rules undecided by the OECD to counter the erosion of the tax base and the artificial transfer of profits—thus stemming the substantial capital outflows—to those countries that offer privileged taxation or, in the more extreme cases, towards tax havens.

Highlights

The Finance Ministers and Governors of the G20 Central Banks, meeting in Lima, approved a package of measures to define a comprehensive, coherent and coordinated reform of international tax rules, expressing universal support for the Joint OECD Project—G20 on “Base Erosion and Profit Shifting”
The aim of this paper is to examine the new rules undecided by the OECD to counter the erosion of the tax base and the artificial transfer of profits— stemming the substantial capital outflows—to those countries that offer privileged taxation or, in the more extreme cases, towards tax havens
The Convention is based on some key principles: firstly, it applies in relation to the treaties that both Contracting States have notified to the OECD for this purpose; the so-called Basic Erosion and Profit Shifting (BEPS) minimum standards apply automatically, with few exceptions, to all treaties that have been notified and when these standards can be met with different solutions, the parties must try to identify one that satisfies each other; in relation to the provisions that do not constitute minimum standards, each contracting country can express a reservation that prevents their application; in some cases, the Convention provides for alternative options which will be applicable only if both contractors expressly choose to do so

Summary

Introduction

The Finance Ministers and Governors of the G20 Central Banks, meeting in Lima, approved a package of measures to define a comprehensive, coherent and coordinated reform of international tax rules, expressing universal support for the Joint OECD Project—G20 on “Base Erosion and Profit Shifting” The package of measures to combat the BEPS constitutes the first and substantial reform of the international tax systems since these, about 100 years ago, were initially discussed and gradually introduced. Actions 2 to 14 are divided into three columns: 1) give consistency to national tax regimes regarding transnational activities; 2) reinforce the substantive requirements underlying the current international standards, pursuing a realignment of taxation (and tax regimes) with the substantial location of production activities and the creation of value; 3) increase transparency, exchange of information and improve the conditions of legal certainty both for the business world and for governments.

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Conclusion