BEPS: The OECD/G20 Base Erosion and Profit Shifting Project

Definition

BEPS — Base Erosion and Profit Shifting — is the OECD/G20 project (launched 2013, the 15-action plan) that addressed the mismatch between where the economic activity creating the profits is performed and where the profits are taxed — the base erosion (the tax base reduced by the deductions, the incentives, the pricing) and the profit shifting (the profit moved to the low- / no-tax jurisdiction). The project delivered the two pillars (Pillar One — the allocation of the taxing rights, the user markets; Pillar Two — the 15% global minimum tax, the GloBE rules) and the transfer pricing changes (the 2015 revised Guidelines — the Action 13 documentation, the intangibles’ DEMPE, the routine return, the HTVI). The BEPS initiative guide has the 15 actions in depth; the glossary’s content is the project’s shape and the TP-relevant actions.

The 15 actions (the plan, the TP-relevant ones flagged):

The action	The subject	The TP relevance
Action 1	Taxing the digitalisation of the economy	→ Pillar One (the allocation, the user markets)
Action 2	Neutralising the effects of hybrid mismatch arrangements	The hybrid entities, the hybrid instruments (the double deduction, the dual resident)
Action 3	Limiting base erosion via interest deductions and other financial payments	The thin capitalisation (the interest cap), the financial payment limitation
Action 4	Countering harmful tax practices	The preferential regimes, the incentive transparency
Action 5	Countering eroding transfer pricing arrangements for intangibles	The intangibles — the DEMPE, the routine return, the HTVI
Action 6	Preventing the granting of treaty benefits in inappropriate circumstances	The treaty shopping, the principal purpose test (the PPT)
Action 7	Preventing the artificial avoidance of permanent establishment status	The PE (the dependent agent, the limited risk distribution)
Actions 8–10	Aligning transfer pricing outcomes with value creation	The DEMPE (the intangibles’ value), the routine return (the limited-risk), the enterprise risk — the 2015 Guidelines’ TP core
Action 11	Measuring and monitoring	The metrics, the data
Action 12	Mandatory disclosure rules for aggressive tax planning arrangements	The disclosure, the aggressive arrangement
Action 13	Transfer pricing documentation and country-by-country reporting	The three-tier documentation (the Master File, the Local File, the CbCR) — Action 13
Action 14	Making dispute resolution mechanisms more effective	The MAP (the mutual agreement procedure) — the MAP guide
Action 15	Developing a multilateral convention to implement the treaty-related measures	The MLI (the multilateral convention, the treaty update)

The two pillars (the project’s outcome, the 2021 agreement):

• Pillar One — the allocation of the taxing rights (the user markets, the Amount A, the nexus) — the profits of the very large and most profitable MNEs allocated to the market jurisdictions.
• Pillar Two — the 15% global minimum tax (the GloBE rules, the top-up tax, the IIR/UTPR/QDMTT) — the Pillar Two guide.

The working read (the BEPS initiative guide): BEPS is the project — the 15 actions, the two pillars, the treaty update (the MLI). The TP-relevant actions (the Action 5 intangibles, the Actions 8–10 value creation / DEMPE / routine return, the Action 13 documentation, the Action 14 MAP) are the transfer pricing changes the project delivered — the 2015 revised Guidelines (the OECD guidelines overview) carry them. The jurisdictions (India included) implemented the actions in the local rules (the s.92 framework, the Rule 10D/10DA/10DB, the safe harbours, the MAP) — the BEPS initiative guide has the India implementation status.

Example

The MNE group’s BEPS position, in the TP context: the intangibles (the Action 5 / the Actions 8–10 — the DEMPE analysis, the routine return for the limited-risk, the HTVI treatment) — the 2015 Guidelines’ TP core, the intangibles’ pricing on the value creation. The documentation (the Action 13 — the three-tier: the Master File, the Local File, the CbCR — the India’s Rule 10DA / 10D / 10DB). The dispute resolution (the Action 14 — the MAP, the two-sided adjustment on the correlative relief). The Pillar Two (the 15% minimum tax — the GloBE computation, the jurisdictional ETR, the top-up tax) — the minimum tax on the group’s undertaxed profits. The BEPS project’s TP changes, in the group’s file: the intangibles’ pricing, the documentation, the dispute resolution, the minimum tax — the four BEPS pillars of the TP file.

See also

• The BEPS Initiative (the guide)
• BEPS Action 13 (the three-tier documentation)
• Pillar Two Explained · DEMPE

FAQ

What is BEPS — a law, a project, or a set of rules? A project — the OECD/G20 BEPS project (the 15-action plan, launched 2013) that delivered the changes (the 2015 revised Guidelines, the two pillars, the MLI). The implementation is the jurisdictions’ (the local rules — the India’s s.92 framework, the Rule 10D/10DA/10DB, the safe harbours, the MAP) — the BEPS project is the standard, the local rules are the implementation. The BEPS initiative guide has the project’s actions and the India implementation status.

Which BEPS actions matter most for the transfer pricing file? The TP core: the Action 5 (the intangibles — the DEMPE, the routine return, the HTVI), the Actions 8–10 (the value creation, the enterprise risk, the intangibles’ alignment), the Action 13 (the documentation — the three tiers), the Action 14 (the MAP — the dispute resolution). The Pillar Two (the 15% minimum tax — the GloBE computation, the top-up tax) is the project’s outcome (the 2021 agreement) — the minimum tax on the group’s undertaxed profits. The BEPS initiative guide has the action-by-action map.

Does BEPS change the arm’s length principle? No — BEPS refines the arm’s length principle (the ALP) — the 2015 revised Guidelines (the BEPS outcome) carry the refined ALP (the DEMPE for the intangibles, the routine return for the limited-risk, the enterprise risk for the entrepreneurial) — the ALP’s application refined, not the ALP itself replaced. The OECD guidelines overview has the 2015 Guidelines’ structure (the BEPS changes, the chapters, the TP core). The arm’s length principle remains the standard — BEPS is the refinement of its application, the documentation, and the minimum tax (the Pillar Two layer on the ALP’s outcome).