BEPS action 4

BEPS (Base Erosion and Profit Shifting) is a term used to describe tax avoidance strategies used by multinational companies to reduce their overall tax burden. It is a problem that has been recognized by the international community and steps have been taken to address it through a set of actions known as the BEPS Action Plan.

The BEPS Action Plan, which was developed by the Organisation for Economic Co-operation and Development (OECD) in 2013, is a comprehensive set of 15 actions aimed at addressing the problem of BEPS. The plan is designed to ensure that multinational companies pay their fair share of taxes in the countries where they operate and to prevent them from shifting profits to low-tax jurisdictions.

One of the key actions of the BEPS Action Plan is Action 4, which focuses on preventing the artificial avoidance of permanent establishment status. Under international tax rules, a company is considered to have a permanent establishment (PE) in a country if it carries on business activities there through a fixed place of business, such as an office or factory. If a company does not have a PE in a country, it is not subject to tax there. The goal of Action 4 is to ensure that companies cannot avoid having a PE by structuring their operations in a way that artificially separates the location of their income-generating activities from the location of the management and control of those activities.

Another action of the BEPS Action Plan is Action 5, which is focused on countering harmful tax practices. This action aims to prevent countries from offering preferential tax regimes that attract companies to locate their activities in that country, even if they do not have a real economic presence there. This action is also aimed at preventing tax havens and other countries from offering low-tax regimes that are not available to domestic companies.

The BEPS Action Plan also includes Action 6, which addresses the issue of treaty abuse. Multinational companies often use tax treaties to reduce their tax liabilities. Action 6 aims to prevent companies from using these treaties to artificially shift profits to low-tax jurisdictions.

The BEPS Action Plan also includes Action 7, which aims to prevent the artificial avoidance of a taxable presence in a country, or a "virtual permanent establishment". The Action 7 is focused on the digital economy and it aims to ensure that companies that operate in the digital economy pay taxes in the countries where they have significant economic activities.

In conclusion, BEPS is a term used to describe tax avoidance strategies used by multinational companies to reduce their overall tax burden. The BEPS Action Plan, developed by the OECD in 2013, is a comprehensive set of 15 actions aimed at addressing the problem of BEPS and ensuring that multinational companies pay their fair share of taxes in the countries where they operate. Action 4, 5, 6 and 7 are some of the key actions of the BEPS Action Plan that focuses on preventing the artificial avoidance of permanent establishment status, countering harmful tax practices, addressing the issue of treaty abuse and preventing the artificial avoidance of a taxable presence in a country.