The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of

1. mining operation by multinational companies in resource-rich but backward areas
2. curbing of the tax evasion by multinational companies
3. exploitation of genetic resources of a country by multinational companies
4. lack of consideration of environmental costs in the planning and implementation of developmental projects

Explanation

Option (b) is correct

• Base Erosion and Profit Shifting occurs when multinational companies exploit gaps or mismatches in tax rules to artificially shift profits to low- or no-tax jurisdictions, even if their business activities are not substantively present there. This reduces their tax liability in countries where they actually operate and generate revenue, ultimately eroding the tax base of these countries.
• India has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).
  • The Multilateral Convention/MLI is an outcome of the OECD / G20 Project to tackle Base Erosion and Profit Shifting (the “BEPS Project”).

Answer: (b) curbing of the tax evasion by multinational companies; Difficulty Level: Medium