BEPS - GS questions based on daily current affairs

ANSWER: Pay lower taxes or avoid taxes altogether

Explanation:

• Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit these gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.
• BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).
• In simple terms it means to shift profits across borders to take advantage of tax rates that are lower than in the country where the profit is made.
• Three popular mechanisms for doing this are hybrid mismatches, special purpose entities (SPE), and transfer pricing.