• Service: Tax, Transfer Pricing Services
  • Type: Business and industry issue
  • Date: 6/11/2014

OECD’s Action Plan to Counter Base Erosion and Profit Shifting 

With increasing globalisation and the growth of e-commerce, it has become easier for multinational enterprises (MNEs) to locate business functions away from the physical location of their customers. Consequently, it is easier for MNEs to shift functions, risks, and the ensuing profits across borders -- to jurisdictions that provide greater efficiencies, and sometimes, greater tax advantages.
In recent years, governments have become very sensitive to the latter, as in some cases, corporate income may not be taxed anywhere at all (double non-taxation), or is only taxed at nominal rates in an offshore haven. This has culminated into the tax morality debate in countries such as the United States, United Kingdom, and Australia, and several MNEs have been publicly questioned on their tax planning structures and tax transparency.

In June 2012, the Organisation for Economic Co-operation and Development (OECD) was tasked to develop a policy framework to address the erosion of domestic tax bases due to the shifting of corporate profits to other jurisdictions.