Overview of Base Erosion and Profit Shifting (BEPS)
In today’s global economy, multinational enterprises (MNEs) operate across multiple countries and use
complex business structures to minimize tax liabilities. While tax planning is legal, aggressive
strategies often lead to Base Erosion and Profit Shifting (BEPS), where profits are artificially shifted
from high-tax jurisdictions to low-tax or zero-tax jurisdictions.
The OECD and G20 launched the BEPS Project in 2013 to curb these practices and close loopholes in
international taxation rules. According to OECD estimates, governments lose USD 100–240 billion annually
because of BEPS.
More than 135 countries have joined the Inclusive Framework on BEPS to ensure fair taxation where value
creation occurs. BEPS is not just about tax compliance—it is about transparency, fairness, and the
sustainability of global tax systems.
Eligibility Criteria
Multinational Enterprises (MNEs)
- Businesses operating in multiple countries
- Companies engaging in cross-border transactions
Revenue Threshold Entities
- MNE groups exceeding EUR 750 million consolidated revenue (for CbCR)
Digital Economy Businesses
- E-commerce and digital service providers
- Businesses earning revenue without physical presence
Governments & Tax Authorities
- Required to adopt OECD-aligned BEPS measures
Financial Institutions
- Must follow transparency and anti-avoidance rules
Types of BEPS Practices
1. Transfer Pricing Manipulation
Shifting profits through over/under-invoicing between related entities.
2. Treaty Shopping
Using tax treaties strategically to avoid withholding taxes.
3. Hybrid Mismatches
Exploiting differences in tax rules of two jurisdictions.
4. Excessive Interest Deductions
Using intra-group loans to shift profits via interest payments.
5. Artificial Avoidance of Permanent Establishment (PE)
Avoiding taxable presence deliberately.
6. Digital Economy BEPS
Generating profits from users in a country without physical presence.
Advantages of BEPS Implementation
For Governments
- Higher tax revenue
- Fair global tax system
- Better international coordination
- More trust in tax systems
For Businesses
- Regulatory certainty
- Improved corporate reputation
- Avoidance of penalties and disputes
- Enhanced investor confidence
Requirements Under BEPS
- Country-by-Country Reporting (CbCR)
- Master File & Local File documentation
- Limitation on interest deductions
- Anti–treaty abuse rules (PPT)
- Mandatory disclosure of aggressive tax arrangements
- Digital economy taxation measures
- Anti-hybrid mismatch rules
Document Requirements
Master File
- Overview of group operations
- Intangible assets & IP details
- Intra-group financing arrangements
Local File
- Jurisdiction-specific transactions
- Benchmarking analysis
- Local financial data
CbCR (Country-by-Country Report)
- Revenues and profits per country
- Taxes paid
- Employees and tangible assets
Additional Records
- Intercompany agreements
- Interest & loan arrangements
- Tax residency certificates
- Details of permanent establishments
BEPS Compliance Process
Step 1: Gap Assessment
Identify compliance risks and BEPS exposures.
Step 2: Data Collection
Gather tax records, agreements, and financials.
Step 3: Policy Review
Ensure transfer pricing compliance.
Step 4: Restructuring
Realign profits with economic substance.
Step 5: Documentation
Prepare CbCR, Master File, and Local File.
Step 6: Monitoring
Review transactions regularly.
Step 7: Audit & Assurance
Conduct compliance audits and assessments.
Why Choose Subrudhi for BEPS Compliance
Subrudhi helps multinational enterprises navigate the complexities of BEPS compliance through expert
advisory, documentation support, and strategic tax planning.
Our team ensures proper alignment of global operations with tax rules, preparation of CbCR/Master File/
Local File, and seamless coordination with international tax authorities.
With advanced analytical tools and unmatched expertise, Subrudhi ensures transparency, compliance, and
risk mitigation for global businesses.
Frequently Asked Questions
BEPS refers to strategies used by MNEs to shift profits to low-tax jurisdictions to reduce tax liability.
Large multinational enterprises, governments, SMEs, and tax authorities.
CbCR requires MNEs with turnover above EUR 750 million to report income and taxes per country.
It ensures tax is paid where users are located, not just where companies are headquartered.
They may face heavy penalties, tax reassessments, legal disputes, and reputational damage.
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