UPSC Prelims 2016 Q60: Indian Economy – Taxation
The term 'Base Erosion and Profit Shifting' is sometimes seen in the news in the context of
- (a) mining operation by multinational companies in resource - rich but backward areas
- (b) curbing of the tax evasion by multinational companies
- (c) exploitation of genetic resources of a country by multinational companies
- (d) lack of consideration of environmental costs in the planning and implementation of developmental projects
Answer: (b) curbing of the tax evasion by multinational companies
Explanation
Base Erosion and Profit Shifting (BEPS)
BEPS refers to tax planning by multinational companies that shifts profits to low-tax or no-tax places.
This erodes the tax base of the countries where the real business is done.
| Feature | Detail |
|---|---|
| Project by | OECD and G20 |
| Action plan | 15 actions, final reports in 2015 |
| Tool | Multilateral Instrument to change many tax treaties at once |
| India's steps | Equalisation levy (2016); GAAR; country-by-country reporting |
The options checked:
| Option | Verdict |
|---|---|
| (a) Mining operation by multinational companies in resource-rich but backward areas | Incorrect |
| (b) Curbing of the tax evasion by multinational companies | Correct |
| (c) Exploitation of genetic resources of a country by multinational companies | Incorrect; that is biopiracy |
| (d) Lack of consideration of environmental costs in developmental projects | Incorrect |
Answer: (b) curbing of the tax evasion by multinational companies.
Why each option is right or wrong
- (a) Incorrect. 'Base' here is the tax base, not a mining base in backward areas.
- (b) CORRECT. BEPS concerns curbing tax evasion by multinational companies.
- (c) Incorrect. Exploitation of genetic resources is biopiracy, not BEPS.
- (d) Incorrect. It has nothing to do with environmental costs of developmental projects.
Key point
BEPS: OECD-G20 project (15 actions, 2015) against profit shifting by multinationals to low-tax jurisdictions; India's equalisation levy followed.
Remember
BEPS = OECD-G20 plan against tax avoidance by multinationals.
Common mistakes
- Reading 'erosion' as soil erosion or mining damage.
- Confusing BEPS with round-tripping of black money.
- Thinking BEPS is a UN project; it is OECD and G20.
Exam tip
Base = tax base; Profit shifting = moving profits to tax havens.
Sources
- OECD — Base Erosion and Profit Shifting Project: 2015 Final Reports
- Central Board of Direct Taxes — Equalisation Levy Rules, 2016