Base Erosion & Profit Shifting and OECD Framework MCQs with Explanations
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies used by multinational companies to shift profits to low-tax countries. The OECD introduced the BEPS framework to prevent tax avoidance and ensure fair taxation. This topic is frequently asked in competitive examinations.
The Base Erosion and Profit Shifting (BEPS) is an Organisation for Economic Co-operation and Development (OECD) initiative.
BEPS refers to tax strategies exploiting differences in tax rules across countries to minimise overall corporate tax payments.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
The BEPS initiative is an OECD initiative, approved by the G20, to identify ways of providing more standardised tax rules globally.
BEPS refers to tax strategies exploiting differences in tax rules across countries to minimise overall corporate tax payments.
This strategy aims to reduce overall corporate tax liability by making profits seem to vanish or by moving them to low-tax regions with minimal real economic activity.
While often not illegal, BEPS tactics capitalise on variations in international tax regulations.
Developing countries are particularly vulnerable to BEPS due to their strong dependence on corporate income tax, especially from multinational corporations.
Ques: 2
Consider the following statements regarding Organisation for Economic Co-operation and Development (OECD):
It is an intergovernmental economic organisation, founded in 1951 with its Headquarters in Paris, France.
It has a total membership of 48 countries.
Which of the statements given above is/are correct?
Correct Answer:
(D)
Neither 1 Nor 2
It is an intergovernmental economic organisation, founded in 1961 with its Headquarters in Paris, France.
It has a total membership of 38 countries.
India is not a member but a key partner of the OECD.
It aims to stimulate economic progress and world trade.
Most OECD members are high-income economies and are regarded as developed countries.
Ques: 3
With reference to Base Erosion and Profit Shifting (BEPS), consider the following statements:
1. It involves tax avoidance by exploiting loopholes in taxation system of the countries
2. BEPS has been deemed illegal globally.
Which of the above statements is/are correct?
Correct Answer:
(A) 1 only
Statement 1 is correct: BEPS refers to “tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid
Statement 2 is incorrect: As per OECD, in most cases BEPS strategies are not illegal. Largely they just take advantage of current rules that are still grounded in a bricks and mortar economic environment rather than today’s environment of global players which is characterized by the increasing importance of intangibles and risk management. That said, some of the schemes used are illegal and tax administrations are fighting them.
Ques: 4
Consider the following statements regarding Base Erosion and Profit Shifting (BEPS):
It refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules.
The developing suffer disproportionately due to BEPS.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Developing countries higher reliance on corporate income tax means they suffer from BEPS disproportionately.
BEPS practices cost countries USD 100-240 billion in lost revenue annually. Working together within OECD/G20 inclusive framework on BEPS, over 135 countries and jurisdictions are collaborating on the implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.
Ques: 5
Consider the following statements with respect to Base erosion and profit shifting
It refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
Base Erosion and Profit Shifting (BEPS) Action plan was adopted by the Organisation for Economic Co-operation and Development (OECD) and G-7 countries.
Which of the statement(s) given above is/are correct?
Correct Answer:
(A) a. 1 only
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) brings together over 125 countries and jurisdictions to collaborate on the implementation of the BEPS Package.
BEPS refers to tax planning strategies 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.