Base erosion and profit sharing is a tax avoidance strategy by multinational companies, where in profits are shifted from shifted from jurisdiction that have high taxes to jurisdiction that have low tax.
Base erosion and profit shifting project is a joint initiative between G20 countries and the OECD , towards the development of a coherent global taxation system which addresses BEPS concerns.
The BEPS initiative focuses on several areas, including:
- a) Reporting and transparency
b) Transfer pricing
c) Deductibility of financing costs
d) Entitlement to tax treaty benefits
e) Tax treatment of companies operating in the digital economy
f) Preferential tax regimes
The main purpose of such initiative is to address the gaps in the current international tax rules relating to arrangements that achieve no or low taxation by shifting profits away from the jurisdictions where the activities creating profits takes place.