What is BEPS?

• Typically, a company needs to pay tax for the income or profits they earn. 
• Base Erosion and Profit Shifting (BEPS) is a tax avoidance strategy by which firms make profits in one country, and shift them across borders by exploiting gaps and mismatches in tax rules, to take advantage of lower tax rates.
• It results in not paying taxes in the country where the profit is made (known as Base erosion).

About OECD/G20 Inclusive Framework on BEPS

• • In 2021, around 140 countries (including India) had agreed on a plan to redistribute tax rights across jurisdictions and enforce a minimum tax rate of 15% on large multinational corporations. 
  • Known as the OECD/G20 Inclusive Framework on BEPS, the framework brings together countries and jurisdictions to collaborate on the implementation of the BEPS Package.
  • The BEPS package provides 15 Actions that equip governments with the domestic and international instruments needed to tackle tax avoidance. 
  • The Framework on BEPS allows interested countries and jurisdictions to work with OECD and G20 members on developing standards on BEPS related issues and review and monitor the implementation of the BEPS Package.

• The Organisation for Economic Co-operation and Development (OECD) is a group of 38 member countries that discuss and develop economic and social policy.

• OECD members are typically democratic countries that support free-market economies. 

• India is not a member.

Two pillars of framework

• The framework has two pillars, one dealing with transnational and digital companies and the other with low-tax jurisdictions to address cross-border profit shifting.
• The first pillar ensures that large multinational enterprises, including digital companies, pay tax where they operate and earn profits. Most such companies have so far been paying low taxes by shifting profits to low-tax jurisdictions. 
  • Under Pillar One, taxing rights on more than $100 billion of profit are expected to be reallocated to market jurisdictions each year.
  • The second pillar seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate (currently proposed at 15%) that countries can use to protect their tax bases.
• If implemented, countries such as the Netherlands and Luxembourg that offer lower tax rates, and so-called tax havens such as Bahamas or British Virgin Islands, could lose their sheen. It is estimated that the minimum tax rate would boost global tax revenues by $150 billion annually.
• The two-pillar package will provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services, infrastructure and the measures necessary to help optimise the strength and the quality of the post-COVID recovery.
• Additional benefits will also arise from the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations.

Why in News?

• President Donald Trump has declared that a global corporate minimum tax deal “has no force or effect” in the U.S., effectively pulling America out of the landmark 2021 arrangement negotiated by the Biden administration with nearly 140 countries.
• The European Union, Britain and other countries have adopted the 15% global corporate minimum tax, but the U.S. Congress never approved measures to bring the U.S. into compliance with it. 

https://www.thehindu.com/business/trump-effectively-pulls-us-out-of-global-corporate-tax-deal/article69123936.ece