Base Erosion and Profit Shifting: A Simple Conceptual Framework
17 Pages Posted: 19 Sep 2014 Last revised: 30 Sep 2014
Date Written: September 25, 2014
The issue of tax-motivated income shifting within multinational firms – or “base erosion and profit shifting” (BEPS) – has attracted increasing global attention and has become the subject of an ongoing OECD initiative. This paper provides a simple conceptual framework that helps to clarify aspects of governments’ responses to the BEPS phenomenon and the potential role of the OECD initiative. An important implication of this framework is that multilateral cooperation of the type envisaged in the BEPS initiative has the potential to reduce the deadweight costs of MNCs’ tax planning and compliance activities, thereby enhancing global welfare.
Keywords: Base erosion, profit shifting, international taxation, multinational firms
JEL Classification: H25
Suggested Citation: Suggested Citation