Question
UPSC Prelims 2016 Question:
The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of
Answer (Detailed Solution Below)
Option 2: curbing the tax evasion by multinational companies
Detailed Solution
Explanation:
- Firms or Corporations make profits in one jurisdiction, and shift them across borders by exploiting gaps and mismatches in tax rules, to take advantage of lower tax rates. Thus, not paying taxes in the country where the profit is made. This collective phenomenon is known as ‘Base Erosion and Profit Shifting’.
- As per The Organization for Economic Cooperation and Development (OECD) estimates, BEPS practices cost countries 100-240 billion USD in lost revenue annually, which is equivalent to 4-10% of the global corporate income tax revenue.
- To tackle the above concern, OECD/G20 came up with Inclusive Framework on BEPS. Under this framework, over 135 countries and jurisdictions are implementing 15 Actions to tackle tax avoidance, improve the coherence of international tax rules, ensure a more transparent tax environment and address the tax challenges arising from the digitalisation of the economy.
Therefore, option (2) is the correct answer.
Subject: Economics | Economic Organisations and Conventions
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