Base Erosion and Profit Shifting (BEPS) refers to the erosion of a national tax base and one process by which this happens. This process is when multinational companies shift the profits generated in the country outside and into jurisdictions such as offshore financial centres with lower or zero tax, thus minimising their tax burden. This practice is legal, but aside from eroding the tax base of countries where the profits have been made it also creates an unbalanced playing field, since small and medium sized businesses do not normally have access to these profit shifting schemes and therefore pay much higher taxes than multinationals.
Why it matters
Companies should enhance levels of corporate transparency, since this allows citizens to hold companies accountable for the impact they have on their communities. Multinationals operate through networks of related entities incorporated under diverse legislation that are inter-related through myriad legal and business connections. Without transparency, many transactions are almost impossible to trace.