The Policy of Liberalization, Privatization and globalization has developed economy globally. The Foreign Direct Investment received by the countries because of above-mentioned policies has helped them in developing and boosting their economy.2 One of the key-policy i.e. globalization has integrated various economies into one and helped big Multi-National Companies to expand and diversify their business.3 It has helped MNCs to shift from high-cost area to low-cost area resulting in maximization of profits.4 Although, globalization has helped countries to create a robust economy but this has also led to issue of International Taxation.5


It is a well-settled principle that taxing is a function of sovereign.7 As Identified by League of Nation in 1920 that the inter-trade and commerce between different countries will lead to issue of double taxation due to domestic tax law structure.6 As suggested by League of Nation, integration and coordination of different jurisdiction will be required to overcome this emerged problem.8 With the span of time, economy has been developed globally and digitally resulting in increase in tele- communication, IP, online-transaction and other developments has helped MNCs to figure out loop-holes and find gaps in domestic tax structure resulting in minimizing their tax burden.9 This has led to the issue of Base Erosion and Profit shifting (Hereinafter, “BEPS”).


The G20 nations invited OECD was to develop action plan against the current issue of BEPS to be adopted by members and non-members of OECD. This was with the view of developing International tax standards which can bring more coherence in current structure and help countries to get their fair amount of tax from MNCs.10

BEPS has created three major problems firstly; the countries are not receiving their fair sum of tax as MNCs has earned revenue by operating in that country but due to aggressive tax planning they are able to shift their profit and pay low or no tax to the source country. Secondly, BEPS have led to harm individual taxpayers as all the burden is now shifted to them and thirdly, it has impacted upon the domestic business operating in the source country as MNCs are able to maximise profits and minimize tax burden, resulting in anti-competitive practices.

OECD has identified six key pressure points which has helped MNCs finance and tax department to identify gaps and loop-holes in domestic tax structure resulting in BEPS and they are as follows;

> Growth and Dynamic nature of Digital

> Hybrid Mismatch Arrangement and Tax

> Intra-group Financial

> Preferential Regimes.

> Anti-Avoidance Measures, and

> Transfer 

OECD has also suggested fifteen action plans to overcome above-mentioned key areas of BEPS.

> Action Plan 1: It addresses to tax challenges of digital economy, where companies are able to function without their physical presence in other country and due to their tax planning, they are paying low or no tax. It suggests effective collection of GST/VAT.

> Action Plan 2: It leads to neutralize the effect of hybrid mismatch transaction by putting a limit on interest deduction by the company operating in source country and paying to its sister or parent

> Action Plan 3: It mainly focuses on strengthening CFC

> Action Plan 4: It suggests the limit on interest deduction for the purpose of base

> Action Plan 5: It entails upon countering harmful tax practice by account transparency and Substance.

> Action Plan 6: It suggest about strengthening domestic structure to avoid treaty shopping done by

> Action Plan 7: It focuses on artificial avoidance of Permanent Establishment

> Action Plan 8-10: They deal with countering transfer pricing undergone by MNCs and provides for effective laws and rules to counter the same by maintaining effective transfer pricing model in the source and resident

> Action Plan 11: It focuses on measuring and monitoring

> Action Plan 12: It suggests about mandatory disclosure

> Action Plan 13: It is about transfer pricing reporting country by

> Action Plan 14: It speaks about dispute resolution

> Action Plan 15: It focuses on developing on multi-lateral


The action plan suggested by OECD mainly emphasis on ‘economic activity’ which tries to rigidly apply the test of ‘economic activity’, but what economic activity will be considered is not defined by OECD. The basis of substantial activity dealing with preferential regimes are not accurately addressed by OECD. Whereas, several alternate approaches were overlooked by the OECD i.e. Formulary Appointment or Tax Base on locate of sale to third parties or VAT on profits allowing labor expense deductible rather than imposing tax on economic activity. But the action plan suggested by OECD are incorporated by OECD members and non-members which are complex in nature and now they are part of International tax standard. Moreover, more analysis and work are required to overcome BEPS and major reforms are required in domestic structure as compared to development in international coherency and integration.


1Fourth Year Student, Symbiosis Law School, NOIDA. (India).

2 GUTTAL, S., Globalisation. Development in Practice, 17(4/5) 523(2007).

3GENSCHEL, PHILIPP & SEELKOPF, LAURA, Globalization and Tax Policy 521 (2016).

4LANE, J. (2004). Globalisation: Promises and Dangers. Zeitschrift Für Staats- Und Europawissenschaften (ZSE) / JOURNAL FOR


5ROXAN, IAN, Limits to globalisation: some implications for taxation, tax policy, and the developing world. LSE law, society and economy working paper series, 3/2012. LAW DEPARTMENT, LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE, LONDON, UK (2012).


7 ibid.

8 ibid.

9 OECD, Action Plan on Base Erosion and Profit Shifting, OECD PUBLISHING, 2013.

10 OWENS, J. Globalisation: The Implications for Tax Policies. FISCAL STUDIES, 14(3), 21 (1993).

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Company: Symbiosis Law School, Noida
Location: Madhya Pradesh, IN
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