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Q:
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What is BEPS?
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A:
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BEPS stands for "Base Erosion and Profit Shifting" and is often used by multinational enterprises to take advantage of deficiencies or incompleteness in international tax rules, as well as differences in tax regimes and loopholes in different countries and regions. BEPS refers to the use of inadequate or incomplete international tax rules, as well as differences in tax systems and loopholes in different countries and regions, to artificially shift profits from high-tax jurisdictions to low-(no-)-tax jurisdictions, thereby maximising (even legally under the old system) tax avoidance or even achieving double non-taxation, resulting in the erosion of the tax base of each country.
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What are the causes of BEPS?
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The more typical ones include the following three.
The independent exercise of tax sovereignty by each country, resulting in a mismatch between domestic tax systems.
Inadequate international tax rules. For example, with the development of the digital economy and technology, the original generally applicable taxation principles and methods have become outdated or have loopholes.
Lack of effective mechanisms for international tax cooperation, such as intelligence exchange and mutual assistance mechanisms in collection and administration.
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What does international tax avoidance usually involve?
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International tax avoidance will usually involve the country of origin of the income, the intermediate holding country and the tax resident country. At the same time, due to differences in tax laws and administration between the three prior countries, the following situations will arise (to name only some)
minimising the tax base of the source country (e.g. through transfer pricing or permanent establishment exemptions)
remitting profits with little or no withholding (i.e. improperly benefiting from tax treaty treatment)
retaining profits in an intermediate holding country with a low tax rate abroad and where the resident country itself does not have a "controlled foreign corporation (CFC)" provision or can easily escape CFC restrictions.
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What is at the heart of BEPS and what are the specifics?
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At the heart of the action plan is anti-avoidance, which comprises 15 action items on the digital economy, aggressive tax planning, preferential tax regimes, transfer pricing, dispute resolution and enforcement of measures.
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What are the impacts of BEPS?
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For example, the issue of eliminating offshore tax avoidance and the impact on "tax havens". See the related article in the Corporate WeChat website for more details.
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