International tax for Foreign Companies in India — Overview
BASE EROSION AND PROFIT SHIFTING BY OECD
By Nagavarapu Bhavya Akshaya
The Base Erosion and Profit Shifting (BEPS) Project is an initiative led by the Organisation for Economic Co-operation and Development (OECD) and the G20 countries. It was launched to tackle tax avoidance strategies used by multinational enterprises (MNEs) that exploit gaps and mismatches in international tax rules to artificially shift profits to low or no-tax jurisdictions.
The primary goal of BEPS is to ensure that profits are taxed where the economic activities generating them are performed, and where value is created. Global tax systems are fairer, more transparent, and coherent, preventing revenue loss for governments.
BACKGROUND
Before BEPS, many multinational corporations (MNCs) used tax planning structures as shifting profits to tax havens through transfer pricing manipulations or intragroup loans, claiming tax deductions in high-tax countries without corresponding taxable income, creating “stateless” income that was not taxed anywhere. These practices significantly eroded the tax bases of many countries, especially developing economies.
IMPLEMENTATION
The BEPS Inclusive Framework includes over 140 countries, including India, working together to implement BEPS outcomes.
The Multilateral Instrument (MLI) allows countries to swiftly update their tax treaties to include anti-BEPS provisions.
India signed and ratified the MLI, effective from October 1, 2019, and has also implemented CbCR, Master File, and GAAR provisions.
Impact on Multinational Enterprises
BEPS has led to, Greater tax transparency (via CbCR and disclosure norms), stricter transfer pricing documentation aligning profits with actual value creation, reduced treaty shopping and artificial PE avoidance, increased tax compliance costs for MNEs.
The BEPS 2.0 Framework (Digital Economy)
Given the rise of digitalization, BEPS 2.0 focuses on two pillars:
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Pillar One: Allocates more taxing rights to market jurisdictions where consumers are located.
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Pillar Two: Introduces a Global Minimum Tax (GMT) of 15% to prevent profit shifting to tax havens.
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About the Author – Nagavarapu Bhavya Akshaya
Nagavarapu Bhavya Akshaya is a CA Final and CMA Final student and an All India Rank holder (AIR 31). With a strong academic foundation in accounting, taxation, and corporate laws, she brings a structured and analytical perspective to complex financial and regulatory topics. Her work focuses on simplifying technical subjects for professionals and businesses, with a special interest in international taxation, corporate structuring, and compliance advisory.
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