Profit shifting / Base Erosion Profit Shifting

Profit shifting is where firms, often multinationals, artificially manipulate the reporting of their internal cross-border activities in order to have profits booked to locations where they receive low or favourable tax treatment. To mitigate against this, the Organisation of Economic Co-operation and Development (OECD) has responded with its Base Erosion Profit Shifting Programme (or ‘BEPS’), which aims to tighten up global fiscal and accounting practices. To reliably minimise tax, profit shifting requires firms to book their surpluses into low tax jurisdictions that have double taxation agreements with the other nations in which they operate so that the tax is paid in the jurisdiction with the lower tax.

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