What Is Base Erosion and Profit Shifting (BEPS)?
Base Erosion and Profit Shifting (BEPS) refers to corporate tax planning which exploits gaps and mismatches between tax rules to shift profits to low-tax jurisdictions.
Also known as: BEPS, OECD/G20 BEPS Project.
How Base Erosion and Profit Shifting (BEPS) works
Base Erosion and Profit Shifting describes how groups can reduce the tax base of countries where economic activity takes place, for example through deductible intra-group payments, hybrid mismatches or artificial avoidance of permanent establishment status, and the term also names the OECD/G20 programme of 15 actions designed to counter such practices. The final reports on the 15 BEPS Action Items were released on 5 October 2015, and jurisdictions implement the outputs through domestic law, amended treaties and the Multilateral Instrument. In the European Union, the Anti-Tax Avoidance Directive introduced several BEPS-related measures, namely interest limitation, exit taxation, a general anti-abuse rule, controlled foreign company rules and rules against hybrid mismatches. Later Pillar One and Pillar Two work grew out of the same framework, and the scope and timing of each measure vary by jurisdiction.
Base Erosion and Profit Shifting (BEPS) vs Tax Evasion
Unlike tax evasion, which involves illegal concealment or non-payment of tax due, Base Erosion and Profit Shifting generally describes arrangements which may comply with the letter of existing rules but exploit mismatches between them, and BEPS measures aim to close those gaps.
Example
Illustrative example: A group headquartered in Country A holds intellectual property in a subsidiary in Country B, where royalty income bears a low effective rate, while operating subsidiaries in Country C pay royalties to Country B and reduce taxable profits in Country C. BEPS-derived measures, such as transfer pricing guidance or controlled foreign company rules in Country A, may reallocate or tax part of that profit, depending on how each country has implemented them.
Common misconception
Myth: BEPS rules only concern large multinationals and never reach small owner-managed companies or their shareholders.
Reality: Several BEPS-related measures, such as controlled foreign company rules, exit taxation and treaty anti-abuse provisions, can apply to small companies and individual owners, depending on domestic thresholds and implementation.
Frequently asked questions
What does BEPS mean in tax?
Base Erosion and Profit Shifting (BEPS) means tax planning which uses gaps and mismatches between national rules to move profits away from where activity occurs, and also names the OECD/G20 project of 15 actions against such planning.
What are the BEPS actions?
The BEPS actions are 15 OECD action items, with final reports released on 5 October 2015, covering areas such as hybrid mismatches, controlled foreign company rules, interest deductions, treaty abuse, permanent establishment status and transfer pricing.
Related terms
- Multilateral Instrument (MLI) — Treaty tool implementing BEPS treaty measures
- Pillar Two — Global minimum tax work following the BEPS project
- Pillar One
Related guides
- Global tax reform and US digital nomads — Global tax reform context following BEPS
- Tax management approaches: from compliance to aggressive strategies — Spectrum from compliance to aggressive planning
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
