Question 35 from UPSC CSE 2016 - Current
Affairs

Question

The term 'Base Erosion and Profit Shifting' is sometimes seen in the news in the context of

Accepted Answer

Correct Option: B. curbing of tax evasion by multinational companies

Strategy: The term 'Base Erosion and Profit Shifting' (BEPS) gained prominence in international news concerning global taxation. Recognize that 'Base Erosion' and 'Profit Shifting' are directly linked to financial mechanisms employed by multinational corporations to reduce their tax liabilities. This immediately directs attention to 'tax evasion' or 'tax avoidance' by MNEs. Evaluate the options: options a, c, and d discuss topics unrelated to tax structures (mining, genetic resources, environmental costs). Option b, 'curbing of tax evasion by multinational companies', is the only one that aligns directly with the financial and taxation implications inherent in the term.

Key Info: **Base Erosion and Profit Shifting (BEPS)**
- BEPS refers to tax planning strategies used by multinational enterprises (MNEs) that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, or to erode taxable bases through deductible payments such as interest or royalties.
- These practices deprive countries of significant tax revenue needed to fund public services and achieve development goals.
- The problem of BEPS became a major focus of international cooperation following the 2008 financial crisis, as governments sought to bolster their tax revenues and address public outrage over corporate tax avoidance.

**OECD/G20 BEPS Project**
- In response to the growing concern over BEPS, the G20 countries asked the Organisation for Economic Co-operation and Development (OECD) to develop a comprehensive action plan.
- The OECD/G20 BEPS Project, launched in 2013, delivered 15 Action Plans in 2015 to equip governments with domestic and international instruments to address tax avoidance and ensure that profits are taxed where economic activities generating the profits are performed and where value is created.
- Key actions include addressing harmful tax practices, preventing treaty abuse, re-examining transfer pricing rules, and improving dispute resolution mechanisms.
- India is a participant in this project and has committed to implementing many of these measures to tackle tax evasion and aggressive tax planning by MNEs within its jurisdiction.

Answer

Option A: mining operations by multinational companies in resource-rich but backward areas

Answer

Option C: exploitation of genetic resources of a country by multinational companies

Answer

Option D: lack of consideration of environmental costs in the planning and implementation of developmental projects