OECD defines it as:
” BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.”
This undermines the fairness and integrity of tax systems because businesses that operate across borders can use BEPS to gain a competitive advantage over enterprises that operate at a domestic level. Moreover, when taxpayers see multinational corporations legally avoiding income tax, it undermines voluntary compliance by all taxpayers.
Estimated Loss due to exploitation of loopholes: $ 100-240 bn.
Who is affected the most :
BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises. If it is not checked it is assumed that they will forego a large chunk of tax income which could be utilized for welfare measures and infrastructural development which can have multiplier effect over other aspects of the economy of a country.
Therefore, it is important to consider ways to revise tax treaties, tighten rules, and to share more government tax information ( owing more to the digital nature the economy is moving). And this is the main objective envisaged under BEPS.
Recent measure taken by Indian Government:
In line with the objective of minimizing the loss due to BEPS, Indian government in its 2016 budget announced an ‘equalisation levy’ of 6 per cent on payments exceeding over Rs 1 lakh to online ad services from non-resident entities. India is the first country to impose such a levy.
A tax panel has recommended expanding the ambit of this levy to cover a wide gamut of transactions including online marketing, cloud computing, website designing, hosting and maintenance, platforms for sale of goods and services, and online use of or download of software and applications.