Limiting Base Erosion

S. 1881. Introduction

Base Erosion and Profit Shifting (BEPS) is not a new phenomenon: it was already a concern of the President of the United States, John F. Kennedy, in 1961. In recent years, it has gained momentum due to globalisation and the increasing mobility of companies and assets. Under the international tax regime, the use of extreme tax planning is not illegal per se, but it does induce several unwelcome side effects of which the erosion of the tax base is only one. Lately, the tax planning of Multinational Enterprises (MNEs) has attracted public attention as tax avoidance schemes have been exposed by the media. It is conservatively estimated that “the resulting revenue losses to national exchequers have grown to as much as $240 billion a year, or 10% of global corporate income-tax receipts”.

The global financial crisis and governments’ declining revenues and negative budgets brought the need for adjustment to the international taxation system into sharp relief. The OECD/G20 Base Erosion and Profit Shifting Action Plan is a direct reaction to these developments and its fifteen Actions represent a “change of paradigm” in the approach to dealing effectively with aggressive tax pla...