Base Erosion and Profit Shifting (BEPS)

Alexander Rust/Viktoria Wöhrer

I. S. 108Introduction

In a triangular situation, three countries might exercise their taxing powers. This can lead to triple taxation. Tax treaties do not always solve the problem of triple taxation, as they are bilateral in nature. In some triangular situations, however, the taxpayer may achieve a very low overall tax burden by benefitting from the application of tax treaties and the use of low-tax regimes. This issue has been recognized by the OECD and is dealt with in Action 6 (“Prevent treaty abuse”) of the Action Plan on Base Erosion and Profit Shifting. Income tax treaties (tax treaties) are concluded to prevent double taxation of income. However, tax treaties generally do not aim at creating double non-taxation or an overall low tax liability. In the Action 6 Deliverable, the OECD has proposed a number of model treaty provisions which have the aim of preventing the granting of treaty benefits in inappropriate circumstances.

Bilateral tax treaties focus on the avoidance of double taxation in situations where two different countries are involved. However, taxpayers may exploit the shortcomings of bilateral tax treaties in situations where they invest in t...