Base erosion and profit shifting (BEPS)

About Base erosion and profit shifting (BEPS):

• BEPS refers to corporate tax planning strategies used by multinational companies to "shift" profits from higher–tax jurisdictions to lower–tax jurisdictions.
• Thus, it helps in avoiding paying taxes to the country where the profit is made.
• BEPS leads to erosion of tax base of higher–tax jurisdictions like India.
• BEPS has major significance for developing countries due to their heavy reliance on
  corporate income tax.
• Transfer pricing practices is major tool used to shift profits from one jurisdiction
  to other.

What is transfer pricing?

• Transfer pricing is the price which is paid for goods or services transferred
  from one unit of an organization to its other units situated in different countries
• This transfer is done by selling goods or services to affiliates in the low-tax
  jurisdictions at cheaper rates resulting in low revenues for the high-tax Jurisdiction
  Company and high revenues and profits in the low tax jurisdiction.

About the Convention to Implement Tax Treaty Related Measures to Prevent BEPS

• The Convention is one of the outcomes of the OECD/G20 project, to tackle base erosion and profit shifting (BEPS).
• The Convention enables countries to implement the tax treaty related changes to prevent BEPS without the need to bilaterally re-negotiate each such agreement which is burdensome and time consuming. 
• The Convention will modify India's tax treaties in order to curb revenue loss through treaty abuse and base erosion and profit shifting strategies.

PRELIMS QUESTION

Consider the following statements regarding Base Erosion Profit Shifting (BEPS):
1.It is highly beneficial for developing countries like India.
2.Transfer pricing is one of the methods used for BEPS.
Which among the above statements is/are correct?
(a)1 only 
(b)2 only 
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to prelims question