Inclusive framework on BEPS is nearing completion of negotiations on Pillar One while Global Minimum Tax agreed under Pillar Two is in the process of coming into force in countries worldwide.
About BEPS
- BEPS refers to tax planning strategies used by Multinational Enterprises (MNEs) that exploit gaps and mismatches in tax rules to avoid paying tax.
- This is done by artificially shifting profits to low or no-tax locations where there is little or no economic activity or by eroding tax bases through deductible payments such as interest or royalties.
- Developing countries’ higher reliance on Corporate Income Tax (CIT) means they suffer from BEPS disproportionately.
- BEPS practices cost countries USD 100-240 billion in lost revenue annually, equivalent to 4-10% of global CIT revenue.
OECD/G20 Inclusive Framework on BEPS
- It is a global initiative that brings together 147 countries and jurisdictions (including India) to fight tax avoidance and ensure fair tax practices.
- Established in 2016, it later adopted Two-pillar approach:
- Pillar One: Reallocation of part of largest and most profitable MNEs to countries where their consumers are present.
- Pillar Two: Global Minimum Corporate Tax (GMCT) of 15% for MNEs.
Significance of Inclusive Framework
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