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

Dharmapala, Dhammika, Base Erosion and Profit Shifting: A Simple Conceptual Framework (September 25, 2014). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 703, Available at SSRN: or

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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