Base erosion and profit shifting

Base erosion and profit shifting (BEPS) is a technical term referring to the negative effect of multinational companies' tax avoidance strategies on national tax bases. BEPS can be achieved through the use of transfer pricing, or, more correctly, "transfer mispricing". BEPS is used in a project headed by the OECD which produced detailed reports in September 2014 in response to seven actions agreed previously. BEPS is said to be an "attempt by the world’s major economies to try to rewrite the rules on corporate taxation to address the widespread perception that the [corporations] don’t pay their fair share of taxes".

Controversy

Causes for controversy around this issue can be found in "gaps and inadequacies of domestic laws, insufficient controlled foreign company rules, transfer mispricing, tax treaty abuses or problems arising from hybrid mismatch arrangements". The effect on countries hosting investment from multinational companies is laid out in, for example, comments made by Oxfam South Africa to the UN: "The negative impact of base erosion and profit shifting (BEPS) on South Africa is evident in the escalating rates of poverty, inequality and unemployment. This continues despite some impressive developmental strides taken by the government. The reason for this is that only 1.6 out of 2 million registered companies in South Africa are active and pay their tax revenue".