BASE EROSION AND PROFIT SHIFTING
BY
ADMIN GROUP 1
INDEX
1
Content Page No.
INTRODUCTION 3
LITERATURE REVIEW 4
RESEARCH PROPOSAL 8
ANALYSIS 9
CONCLUSION 17
BIBLIOGRAPHY AND REFERENCE 18
Name Roll No.
Anmol Agarwal H01
Anubhav Jindal H02
Anushaa Seth H03
Apratim Kejriwal H04
Arhan Jain H05
INTRODUCTION
2
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies used by multinational
corporations that take advantage of tax regulations to avoid paying taxes. The greater
dependence of developing countries on corporate tax means that they suffer disproportionately
from BEPS.
BEPS practices cost countries $ 100.240 billion in lost revenue annually. As part of the
OECD / G20 Inclusive Framework on BEPS, 140 countries and jurisdictions are working
together to implement 15 measures to combat tax avoidance, improve the coherence of
international tax regulations, and ensure a more transparent tax environment.
BEPS refers to tax planning strategies that exploit loopholes and mismatches in tax
regulations to artificially shift profits to low or no tax places where there is little or no economic
activity or to undermine tax bases through deductible payments such as interest or royalties.
While some of the schemes used are illegal, most are not. This undermines the fairness and
integrity of tax systems, as companies operating across borders can use BEPS to gain a
competitive advantage over domestic companies. Additionally, when taxpayers discover that
multinational corporations legally evade income tax, it undermines the voluntary compliance of
all taxpayers. Corporations generate profits in a single jurisdiction and move them across borders
exploiting loopholes and mismatches in tax regulations to benefit from lower tax rates and thus
avoid paying taxes to the country where the profits are made. Throughout the world, there has
been concern that companies in a given country may make a profit but not pay taxes to the local
government.
The Organization for Economic Co-operation and Development (OECD) states that BEPS
is of great importance to developing countries due to its heavy dependence on corporate taxes,
especially from multinational corporations. As part of the BEPS project, the OECD, under the
supervision of the Group of 20 countries, considered ways to review tax treaties, toughen
regulations and disseminate more government tax information, and published action plans last
year. One of the areas discussed was overcoming fiscal challenges in the digital economy. The
term gained public awareness last month because the 2016 Union budget announced a 6 percent
"offsetting charge" on payments of more than Rs 1 lakh to online advertising services from non-
resident companies. The companies affected would be mainly multinationals from the new
economy with Indian subsidiaries such as Facebook and Google.
3
LITERATURE REVIEW
Digital Economy and Global Tax Reform
Since the 1990s, technological advancements in information and communications technology
(ICT) have significantly impacted how goods, services and information are traded. More cross-
border trade is now digital and the trend is likely to continue in the future.
The spread of the digital economy brings about many benefits in terms of -
· Growth
· Employment
· Productivity
· Well-being
· Trade cost reduction by improving customs procedures, increasing the efficiency of
logistics and reducing the costs of communication and contract enforcement.
At the same time, it gives rise to a number of challenges for policy makers from a tax policy
perspective. The old form of global taxation and the principles on which it is founded come in
for revision.
The current systems for levying tax have become outdated with regard to how taxing rights over
profits of companies are distributed among the sovereign nations. The shortcomings in the
existing tax laws and treaties are particularly evident in the case of profits generated by internet-
related activities (online profits)-virtual international business activities.
Globally, countries allocate the right to tax company profits on the basis of the well-known
principles of ‘source’ and ‘residence’. Source refers to the place with the existence of a
permanent establishment whereas Residence refers to the place of effective management.
Permanent Establishment (PE)
PE is a fixed place of business that may give rise to taxable profits in a particular
jurisdiction(country). Historically, multinational firms had a PE presence in many countries and
thus their profits were taxed in those jurisdictions separately from where the parent company is
headquartered.
The relevance of PE is eroding quickly. The concept of the permanent establishment in profit
taxes requires a permanent physical presence in a country which is not relevant for so many
internet companies that operate digitally today. Therefore, the concept is in need of revision as it
does injustice to the taxing rights of many countries. Specially in the pandemic times when the
low- income countries are spending by borrowing, it is imperative that they get their taxing rights
to cushion their fiscal resources.
4
In today’s world the way of doing business has changed. The digital economy makes up 15.5%
of global GDP in 2021 and has grown two and a half times faster than global GDP over the past
15 years preceding 2021, according to the World Bank. Many of the largest digital goods and
services companies are multinational and are headquartered in the United States and operate
internationally. Internet made it possible for businesses to supply goods and services without any
need for a local presence in so many countries, either physically or legally. Internet companies
generate virtual profits from e-commerce of goods, gaming, streaming, data storage or other
forms of internet servicing activities such as social media platforms or online search engines. But
the outdated taxation criteria make it difficult to subject these virtual profits to effective taxation
in countries where they do business. It is hard to pin down the digital economy’s profits for tax
purposes. The tools available in international tax law have become outdated. Many countries are
incurring huge revenue losses. This process is leading to various drawbacks such as –
· Other domestic units are being taxed more to make up for losses
· Government's ability to spend on welfare is reducing
· Inequality is rising
Significant Economic Presence (SEP)
Impacted countries are replacing the concept of permanent establishment with `significant
economic presence(SEP) as in India.
The concept of 'Significant Economic Presence (SEP) was introduced in India's domestic tax law
in 2018 essentially to tax the income of foreign companies operating in the digital space like e-
commerce, online streaming, etc.
Foreign companies having SEP in India would be deemed to have a 'business connection' in
India and their income becomes subject to tax. Goods, services, advertisements and data are
taxable. The criteria are both income and user base.
The criteria for having SEP are -
· A revenue threshold of Rs. Two crores for sales to Indian persons or
· A user base threshold of 300,000 Indian users.
If a non-resident company exceeds either of these thresholds, the SEP rules will apply, resulting
in the taxation of the non-resident in India.
Equalization Levy
India introduced 'equalization levy' (EL) in 2016 for online advertisements when the revenue
goes to foreign companies. It was 6% of the advertisement revenues. It is popularly known as
google tax. EL was later in 2020 extended to e-commerce foreign companies at a rate of 2% of
revenues. It is in line with the OECD-G20 Inclusive Framework for a global consensus on taxing
the digital economy.
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Equalization Levy administration is left to the Central Board of Direct Taxes (CBDT)which is
the apex body for administering direct taxes. An equalization levy is administered in the same
manner as a direct tax i.e. Income Tax. But equalization levy is not a direct tax as it is not
introduced under any of the direct tax statutes like the Income Tax Act 1961 or Wealth-tax Act
etc. Since the equalization levy is not enacted under Income Tax Act, the benefit of international
tax treaties would not be available for Equalization Levy. Non-resident e-commerce operators
would be liable to pay EL even if they do not have a permanent establishment in India. The aim
was to mobilize revenues in the new global digital business and also to observe the principle of
'horizontal equity in taxation which states that similar incomes and assets should be taxed
similarly. In this case, domestic and foreign companies’ revenues. Without horizontal equity,
domestic companies cannot compete with foreign digital companies that do not pay taxes. Not
only India, many other countries, some of them being developed countries such as the United
Kingdom, France, Austria, Italy, etc., have also imposed various forms of digital services tax
(DST). While it is a unilateral tax and is, by one interpretation, not legal, the global digital
business order is seen to require such interventions by those countries whose tax base is eroded.
However, there has to be a global consensus which the G7, G2 and the OECD are working out.
For decades, companies have contributed to public expenses via a broad range of taxes in
addition to corporate income tax: employment taxes, environmental taxes, property and land
taxes. But the development of digital technologies has the potential to enable companies to
operate in ways that avoid or significantly reduce their tax liability within these bases. It
diminishes the fiscal resources available to governments and their capacity to deliver public
goods and welfare services. Pressure may increase on a smaller number of taxpayers to
compensate for the related loss of revenues. The loss of the fiscal base weakens growth and
investment and worsens inequality.
Base Erosion and Profit Shifting (BEPS)
BEPS refers to tax planning strategies that exploit gaps in tax rules and rates among nations to
artificially shift profits to low or no-tax locations even as there is little or no economic activity.
Since the entire operation aims at only non-payment of taxes, according to Indian law, it is not
tax planning and is tax avoidance. 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 in terms of tax liability. Moreover, when
taxpayers see multinational corporations legally avoiding income tax, it undermines voluntary
compliance by all taxpayers. BEPS losses are particularly harmful as nations are struggling for
tax revenues as their dependence on borrowings are reaching critical limits.
Following the financial crisis in 2008 the G20 countries put tax at the top of their agenda and
have led the fight against tax evasion and avoidance. They started cooperation with the OECD
group. The OECD G20 Base Erosion and Profit Shifting Project (BEPS Project) was begun in
2013 to set up an international framework to combat tax avoidance by multinational enterprises
("MNEs") using base erosion and profit shifting tools. The BEPS report has been delivered in
2015 and the project is now in its implementation phase.
6
In 2019, the OECD released a Policy Note communicating that renewed international discussions
would focus on two central pillars:
1. Pillar One addresses the broader challenges of the digitalization of the economy and
focuses on the allocation of taxing rights
2. Pillar Two addresses the development of global minimum tax rules with the objective
of ensuring that global business income is subject to at least an agreed minimum rate
of corporate tax. It is also referred to as the “Global Anti-Base Erosion” or “GloBE”
proposal.
India and BEPS
In 2019, India ratified the Multilateral Convention (or ‘MLI’) to Implement Tax Treaty related
measures to prevent base erosion and profit shifting and submitted ratified copy of MLI with the
Organization for Economic Co-operation and Development (OECD) Depositary. Ratification of
MLI will modify India's treaties in order to curb revenue loss through base erosion and profit
shifting strategies. It means revenues are taxed where substantive economic activities generating
the profits are carried out and where value is created.
The BEPS package provides 15 actions that equip governments with domestic and international
instruments to tackle BEPS. One of the Actions of the BEPS Action Plan 15, propagated
developing a Multilateral Convention to be signed by all participant countries which would have
the effect of amending all existing treaties in force at once. The Multilateral Convention aimed to
enable countries to implement tax treaty-related measures to tackle BEPS through the
multilateral route without the need to bilaterally re-negotiate each treaty which would otherwise
have been burdensome and time-consuming.
One area that is still not covered within the MLI is the taxation of the digital economy, although
the OECD is rapidly working towards a mutual consensus-based solution to put this in force.
RESEARCH PROPOSAL
7
The Topic for this Research Paper is “Base Erosion and Profit Shifting” and through the
following write up we wanted to find out more about this topic and its relation to the Indian
Economy at large.
As introduced earlier in this research paper BEPS is a way in which multinational
Companies try and avoid taxes. This has major effects on the economy as a large amount of tax
goes unpaid.
First, we speak about the background and learn in depth what BEPS is and how it grew
during digitalization. We see the data provided on BEPS to learn more about it
Then we need to realize that everything has a good and bad side to it and even though
BEPS sounds like an all-bad thing for the country it has to have its certain merits which the
country enjoys. Furthermore, we have compared the advantages and disadvantages that the
government as well as the companies faces by taking part in the BEPS initiative and learning
about the gains and the impacts that BEPS creates.
We talk about the people who use the BEPS initiative in a completely negative sense and
measure and actions that can be taken to reduce these malpractices.
We will also begin seeing how the BEPS initiative functions in India and how India is
tackling such a process and the benefits India reaps from such activities. We also talk about some
of the cases of companies partaking in Base Erosion in India.
Then finally we have summarized the analysis in short to give a final analysis of BEPS
and have given suggestions to the problems that BEPS has.
To make all of this possible, we have worked together and used a number of research
paper and articles as reference materials.
ANALYSIS
8
DATA OF BEPS
There were 15 action plans introduced by the Organization for Economic Co-operation and
Development
(OECD) for BEPS. But the 11th action plan talks about the methodologies to collect and analyze
BEPS data. Action plan 11 analyses the different data sources available for BEPS and analyses
its strengths and limitations. The work also requires analyzing a variety of available data sources,
identifying new sets of data that should be collected, and creating algorithms based on both
aggregate and micro-level data, all the while keeping taxpayer confidentiality and administrative
expenses in mind. Analysts trying to inform policymaking must select between several imperfect
methodologies based on the particular question they are trying to answer and the available data
with many other complicated policy challenges. The department's information system was also
created, with the goal of monitoring and helping with evaluation and other departmental
operations. But, The underrepresentation of underdeveloped countries is a serious flaw in almost
all accessible data sets. This could lead to an underestimation of global profit shifting, especially
considering the importance of BEPS in developing nations, as several recent studies have shown.
THE BENEFITS AND DISADVANTAGES OF THE GOVERNMENT AND
COMPANIES
The following analysis will look into Base Erosion and Profit Shifting (BEPS), the causes and
effects of the benefits and drawbacks that multinational corporations and governments face, and
possible solutions to these issues.
Further in the solution section, the concept is to apply dividend income tax rates to corporate
income tax rates. Because company profits have a favorable effect on state income, Base Erosion
and Profit Shifting (BEPS) can have a positive impact on our country if the government can
make appropriate use of it.
The objective of Base Erosion and Profit Shifting (BEPS) is to prevent undue profit shifting
between countries or multinational corporations. Many countries around the world, including
those in the G20, have high tariffs. As a result, these countries are more vulnerable to the effects
of multinational firms' Base Erosion and Profit Shifting (BEPS) activities. The amount of
business tax rates for all G20 member countries demonstrates this. In the G20 member countries,
there are disparities in tax rates. This will encourage taxpayers, particularly multinational
corporations, to engage in tax arbitrage.
Base Erosion and Profit Shifting (BEPS) is a positive factor for corporations and taxpayers,
especially multinational corporations. This is because the use of Base Erosion and Profit Shifting
(BEPS) will result in lower taxes and more profits for businesses. BEPS (Base Erosion and Profit
Shifting) is a bad thing for the government. This is because the implementation of Base Erosion
and Profit Shifting (BEPS) will result in lower state revenues for nations with high tax rates. As a
result, there are advantages and disadvantages between international corporations and the
government.
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POTENTIAL GAINS AND IMPACT FROM BEPS INITIATIVE
Much of the public concern over BEPS originates from the perceived potential income losses
from BEPS activities, as indicated by the debate surrounding the topic. While these concerns are
justified, economists believe that the BEPS initiative's key potential benefit is the possibility of
reducing deadweight costs connected with multinational corporations' tax planning and
compliance activities. The benefits of increasing or dispersing tax revenues via the BEPS
initiative are far less evident when compared to these unambiguous potential savings from
decreasing deadweight costs.
Corporate tax revenues also account for a small percentage of total revenue for most developed
countries' governments; for example, in 2012, corporate tax revenues accounted for 7.4% of total
revenue in the United Kingdom. Additionally, this has been the case for some time, with
company tax collection as a percentage of GDP being largely consistent over time. As a result,
BEPS activity by multinational corporations is unlikely to have a large impact in deciding the
total level of tax income in developed economies. For similar reasons, BEPS activity is unlikely
to have a significant impact on the allocation of tax revenue among governments in wealthy
countries. Developing countries, on the other hand, often derive a far bigger portion of their tax
revenue from corporate taxes and may have limited ability to move to other forms of taxation.
Indeed, it is sometimes stated that BEPS action is particularly harmful to underdeveloped
countries. This condition may result in a normatively undesirable distribution of tax base and tax
revenues among countries. This underlines the fact that the BEPS initiative's potential benefits
are mainly derived from the decrease of deadweight costs.
BASE EROSION AND PROFIT SHIFTING (BEPS) NEGATIVE PRACTICES
a. There is a competitive advantage distortion; global corporations will benefit more from Base
Erosion and Profit Shifting (BEPS) than domestic companies in terms of competitive advantage.
b. Inefficient resource allocation by distorting investment decisions toward businesses with low
pre-tax returns but high after-tax b. Inefficient resource allocation by distorting investment
decisions toward businesses with low pre-tax returns but high after-tax returns.
c. The exercise of Base Erosion and Profit Shifting (BEPS) will discourage taxpayers from not
complying with their tax obligations when they see multinational companies that do not comply
or avoid tax obligations.
15 BASE EROSION AND PROFIT SHIFTING (BEPS) ACTIONS PLAN THAT WERE
MENTIONED ABOVE
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i. Action 1: Addressing the Tax Challenges of the Digital Economy.
ii. Action 2: Neutralize the effects of hybrid mismatch schemes
iii. Action 3: Strengthen controlled foreign company
iv. Action 4: Limit base erosion via interest deductions and other financial payments
v. Action 5: Counter harmful tax practices more effectively, taking into account transparency and
substance
vi. Action 6: Prevent treaty abuse
vii. Action 7: Prevent the artificial avoidance of permanent establishment status.
viii. Action 8-10: Assure that transfer pricing outcomes are in line with value creation
(intangibles, risks and capital, other high-risk transactions).
ix. Action 11: Establish methodologies to collect and analyses data on BEPS and the actions to
address it.
x. Action 12: Require taxpayers to disclose their aggressive tax planning arrangements
xi. Action 13: Re-examine transfer pricing documentation
xii. Action 14: Make dispute resolution mechanisms more effective.
xiii. Action 15: Develop a multilateral instrument
INDIA’S MEASURE TOWARDS BEPS ISSUE AND IT’S BENEFITS
The Base Erosion and Profit shifting Project, established by the OECD, involves India playing a
significant role . India is working to change its laws in order to tackle the issue of base erosion
and profit shifting (BEPS).Some of the following are the measures taken by India which shows
its awareness towards the BEPS issue.
● Country-by-Country Reporting (CbCR) – It is part of the Organization for Economic
Cooperation and Development's Base Erosion and Profit Shifting Action Plan 13. India
has already implemented some of the key recommendations of the BEPS project through
changes in its own tax legislation. The CbCR must be reported by an Indian affiliate of a
foreign-parented group or an Indian parent firm, according to Section 286(2) of the
Indian Income Tax Act.
● An inter-government agreement was signed between India and the United States for the
automatic sharing of country-by-country (CbC) reports.
● This will make things easier for Indian subsidiaries of US parent companies to comply.
● This is an essential step towards India becoming compliant with the Base Erosion and
Profit Shifting (BEPS) initiative, in which it is a member.
● Thin capitalization - Thin capitalization is a situation in which a firm is financed with a
large amount of debt compared to its equity (highly leveraged).
● Secondary Adjustments - Secondary adjustments are designed to ensure that the cash
profits of the taxpayer are in line with the tax profits following a primary adjustment. The
11
Central Board of Direct Taxes announced revisions to Rule 10CB of the Income Tax
Rules on September 30, 2019. (CBDT)
● Patent Box tax regime -A Patent Box is a tax regime for Intellectual Property revenues. It
was implemented in India by the introduction of the new Section 115BBF in the Finance
Act of 2016.
For bilateral tax treaties, the framework's rules will take effect in 2020-21. The Convention
ensures consistency and certainty in the multilateral implementation of the BEPS Project. The
Convention also allows for such exclusion of a specific tax treaty and also the opting out of
portions or parts of provisions by filing reservations.
SOME CASES OF BASE EROSION FROM INDIA
While the overall data show that India is a contributor of base erosion, the specifics of the types
of base erosion can only be determined through cases detected by Indian tax officials. In order to
get a idea of the forms relevant for India, summarized below are some cases that have been
raised and disputed in India. Some of the following probable cases of base erosion and profit
shifting from India are :-
● eBay International Inc. Vs. ADIT
eBay is incorporated in Switzerland. It is an online platform for buying and selling a variety of
products by connecting buyers and sellers. eBay was also introduced in India. The system in
eBay was that the seller had to enter the product he wanted to sell with all the other details which
were required so that the buyer can choose accordingly. After buying the product the assessee
sends the seller a regular invoice for the "user fee" when the sale is completed successfully. The
seller is responsible for paying the user fee to eBay India for any transactions made on the
websites. eBay India collects the user fee from the vendors and sends it to the Swiss company.
For the assessment year 2006-07, eBay India earned revenue amounting to Rs.4,94,27,530/ -
from the operations of its websites in India. The taxpayer claimed that such revenue represented
business profits and could be taxed in India as per the provisions of Article 7 of the DTAA
between India and Switzerland only if it had a Permanent establishment in India as per the
provision of Article 5.
The Tribunal held that there was no dispute that eBay India and eBay Motors were providing
their exclusive services to the taxpayer; that it had been admitted that these two entities had no
other source of income other than the assessee; and that eBay India had become dependent
agents of the assessee in place of the provision of service. The Tribunal further noted that eBay
12
India had never negotiated or entered into a contract for or on behalf of the foreign entity. The
Tribunal found that eBay India does not routinely use its "power to negotiate and enter into
contracts for or on behalf of" the assessee. As a result, they could not be classified as the
taxpayer's dependent agent Permanent Establishment, and their income could not be taxed in
India under the current laws.
● Nimbus Sport International Pte Ltd Vs DDIT
Nimbus is an Indian media and entertainment corporation featuring channels such as Neo Sports
and Neo Cricket. In Singapore, a company called Nimbus Sport International Pte Ltd was
formed. It was stated that it was managed entirely from Singapore and that it did not have a PE in
India. From February 2002 until October 2004, it had an arrangement with Prasar Bharati to
broadcast cricket matches. The taxability of advertisement revenues paid by Indian sponsors
such as Coca-Cola India Pvt Ltd, Seagram Manufacturing Ltd, and others during the telecasting
of matches played in Sri Lanka was one of the points raised in the case.
The Assessing Officer found that the taxpayer had a PE in India and that the source of the
earnings was India because the Indian team participated in these international matches, which
were broadcasted in India. He determined that 20% of gross receipts from advertisements were
related to the PE in India, and he estimated that 50% of that money was attributable to the PE in
India. On appeal, the Certificate in Information Technology Application (CITA) observed that
various Indian companies such as Coca-Cola, Pepsico Food, LG Electronics, and others signed
contracts with the assessee company to advertise their products and that the assessee company
provided advertising to various Indian companies via live telecast that was viewed by customers
in India. On appeal, the Tribunal held that the contract was signed by the assessee at Singapore
and all the activities relating to this contract were carried out from Singapore; there is no
evidence on record that the management and control of the affairs of the company were situated
in India.
The Tribunal found that the taxpayer denied a PE in India, that the matches were not played in
India, that the matches were not broadcasted in India, and that the indirect advantage gained by
some Indian viewers could not be considered incremental for Indian enterprises based on
assumption. The Tribunal determined that the advertisement revenue had no attribution to India
and could not be taxed in India since there was no PE under the traditional definition of the term.
SUMMARY AND ANALYSIS OF THE OECD’S WORK PROGRAM FOR BEPS 2.0
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The Inclusive Framework (IF) on BEPS is also contributing to the current effort, which is led by
the G20 and OECD governments. This is a coalition of 129 countries that are collaborating to
modify international tax standards.
The policy alternatives identified in the work plan are divided into two categories. The first pillar
deals with taxing rights and nexus laws.
i. The three Pillar 1 options would all offer market countries (where items are sold or users live)
a higher portion of the taxable profit, but they would do so in different ways.
ii. Pillar 2 outlines a global minimum tax and a tax on base-eroding payments.
- PILLAR 1
Let's have a look at an example.
If a Japanese company invests considerable money in collecting client lists, marketing its brand,
and acquiring market dominance in India, it may be able to achieve it without ever opening a
physical office there. This might lead to many sales into India without the company having to
pay corporate income tax in India (the tax would be paid in Germany, the company's home
country), while other taxes, such as India's Goods and Services Tax (GST), would almost
certainly apply. The Pillar 1 possibilities, on the other hand, foresee realigning international tax
regulations such that India may potentially tax a portion of that manufacturer's corporate revenue
in addition to its sales. India's share could be determined by a number of factors, including the
company's amount of expenditure in marketing its product to Indian clients, as well as its global
profitability.
Another example is of a social networking company based in the United States that allows users
to join the network for free and has a sizable user base in France. The information gleaned from
those users could be useful to advertising looking to reach out to French customers. In France,
the social networking company may not have any staff, servers, or even advertising sales agents.
The current structure would normally allow such corporation to pay no corporate income tax in
France and potentially no consumption tax liability as well. Instead, the tax would be due in the
United States, where the software designers work, or in the nations where the servers and
advertising salespeople work. One of the possibilities under discussion in Pillar 1 would be to
assign some of that company's taxable income to France solely based on French users and an
attribution of value creation (and consequently profitability) to those users because their data is
valuable to marketers. This strategy is based on the notion that such users are adding value to a
business while using a free service.
The three primary possibilities covered in Pillar 1 are as follows:
1.Modified residual profit split method
2.Fractional apportionment method
3.Distribution-based approaches
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- PILLAR 2
Pillar 2 is a more direct continuation of the original BEPS project than Pillar 1. The rules
specified in Pillar 2 may result in significant modifications to policies aimed at reducing base
erosion and profit shifting. A global minimum tax (GloBE) and a tax on base-eroding payments
are among the policy reforms. The idea behind this method is that, despite a country's efforts and
the BEPS recommendations, some corporations can still locate earnings in low-tax jurisdictions,
and countries are seeking new ways to tax that money.
FINAL ANALYSIS
It is possible to infer that company earnings have a beneficial effect on state revenues, and that if
the government can use Base Erosion and Profit Shifting (BEPS) to raise company profits, it
should enhance state revenues as well. To do this, the researcher proposes allocating corporate
income tax rates to dividend income tax. For example, in country XYZ, the corporate income tax
is 25% and the final dividend income tax is 10%. If tax rates are allocated, such as a 15%
corporate income tax and a 20% final dividend income tax, multinational corporations tend to
shift their corporate profits from other countries to our country. Increased corporate profits as a
result of the notion of Base Erosion and Profit Shifting (BEPS) will increase payable taxes,
which will enhance state revenue.
As a result, Base Erosion and Profit Shifting (BEPS) is not entirely terrible and does not harm
state income. If the government can gain a better understanding of Base Erosion and Profit
Shifting (BEPS), it may be able to improve State revenue or have a positive influence on the
State.
However, the issues that are of concern are highlighted below.
Despite safeguards made by the Organization for Economic Coordination and Development
(OECD) and the Group of 20 (G20), there are still concerns with aggressive tax avoidance, such
as the cases of Google, Facebook, Starbucks, and Amazon. The global corporation did not breach
any laws, but engaged in tax management, which resulted in aggressive tax avoidance. Because
this is more of a moral and ethical issue, making regulations and legislation is tough. As a result,
tax evasion is permissible if it is done in conformity with the existing legislation (PWC, 2013)
SUGGESTION
It is advised that the government should consider a tax rate policy that is consistent with Base
Erosion and Profit Shifting (BEPS) while also maintaining State income.
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CONCLUSION
BEPS stands for "Base Erosion and Profit Shifting," which refers to tax planning methods
that take advantage of loopholes and mismatches in tax rules to artificially transfer earnings to
low- or no-tax jurisdictions. Corporations create profits in one jurisdiction then shift them across
borders, taking advantage of tax loopholes and mismatches. The BEPS package includes 15 acts
that give local and international tools for governments to combat BEPS.
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The goal of Base Erosion and Profit shifting (BEPS) is to prevent nations or multinational
businesses from shifting profits around unnecessarily.
Since a result, the government finds itself in a predicament, as tax revenues are cut. The
severe loss of tax revenues as a result of BEPS is causing considerable alarm.
India has made a significant contribution to the BEPS project. India has participated in
the forum's development of action plans, as well as in numerous working groups, committees,
and task forces established to examine various elements of these plans.
Following the release of the final BEPS deliverables, numerous Indian government
officials have actively participated in different public forums and given press statements on the
Indian government's views. These provide useful information on the potential change of a tax
regime that may be in the works as a result of the BEPS initiative, as well as how the government
intends to cope with it.
BIBLIOGRAPHY
1. https://www.thehindu.com/news/cities/mumbai/whats-base-er
2. osion-and-profit-shifting/article8404293.ece
3. https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-progress-report-
july-2020-september-2021.htm
4. https://www.ifo.de/DocDL/dicereport414-forum2.pdf
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5. https://unctad.org/system/files/official-document/diae2018d4_en.pdf#page=101
6. https://repository.law
7. .umich.edu/cgi/viewcontent.cgi?article=2378&context=articles
8. https://taxfoundation.org/oecd-work-program-beps-analysis/
9. https://cleartax.in/s/equalisation-levy
10. https://www.un.org/development/desa/financing/what-we-do/ECOSOC/tax-
committee/thematic-areas/base-erosion-and-profit-shifting
11. https://www.thehindubusinessline.com/business-laws/significant-economic-presence-
and-its-legal-significance/article34683362.ece/amp/
12. https://www.oecd.org/tax/beps/about/
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