BEPS Explained – OECD Action Plan, India’s Reforms, and 2025 Global Developments | Understanding BEPS and Global Tax Fairness

In the interconnected global economy, Base Erosion and Profit Shifting (BEPS) has emerged as a critical challenge to tax fairness and fiscal integrity.
BEPS Explained: It refers to tax planning strategies that exploit gaps and mismatches between tax systems to shift profits to low or no-tax jurisdictions, thereby eroding the tax base of higher-tax economies.

To address this global concern, the Organisation for Economic Co-operation and Development (OECD) and the G20 jointly launched the OECD BEPS Project, a coordinated international initiative designed to ensure that profits are taxed where the real economic activities occur and value is created.

👉 Learn more about the OECD BEPS initiative here.

🧭 Evolution and Importance of BEPS

When discussing BEPS Explained, it’s essential to understand its origins.
Globalization and the digital revolution have transformed business models. While these developments have stimulated growth and innovation, they have also created opportunities for profit shifting through intangible assets, intra-group financing, and digital transactions.

Traditional international tax rules—developed nearly a century ago—were not equipped to handle these complexities. The OECD recognized that without reform, countries would continue to lose tax revenue, and businesses would face uncertainty and reputational risks.

Thus, BEPS (Base Erosion and Profit Shifting) represents a pivotal global movement toward transparency, cooperation, and aligning taxation with real economic substance rather than artificial arrangements.

📘 OECD’s 15-Point BEPS Action Plan

The OECD-G20 BEPS Action Plan provides a structured approach to curb aggressive tax avoidance.
Here’s BEPS Explained through its 15 key actions that countries can adopt to modernize tax frameworks and close loopholes.

Major BEPS Action Points:

• Action 1: Addressing the tax challenges of the digital economy.
• Action 2: Neutralizing hybrid mismatch arrangements.
• Action 3: Designing Controlled Foreign Company (CFC) rules.
• Action 4: Limiting base erosion through excessive interest deductions.
• Action 5: Countering harmful tax practices with transparency and substance.
• Action 6: Preventing treaty abuse and “treaty shopping.”
• Action 7: Preventing artificial avoidance of Permanent Establishment (PE) status.
• Actions 8–10: Aligning transfer pricing outcomes with value creation (intangibles, risks, capital).
• Action 13: Implementing Country-by-Country Reporting (CbCR) for MNEs.
• Action 15: Developing a Multilateral Instrument (MLI) to amend tax treaties efficiently.

Collectively, these actions foster global consistency and help ensure fair taxation across jurisdictions.

🇮🇳 India’s Legislative Response to BEPS

BEPS Explained in the Indian Context:
India has been a frontrunner among G20 countries in implementing BEPS measures. Recognizing the risk of profit shifting by multinational groups, India has introduced multiple legislative, administrative, and policy reforms aligned with the OECD’s BEPS framework.

1. Transfer Pricing Regulations (Chapter X, Income-tax Act, 1961)

These ensure that international transactions between associated enterprises (AEs) are at Arm’s Length Price (ALP). Chartered Accountants report compliance in Form 3CEB under Section 92E, guided by ICAI’s Guidance Note on Report under Section 92E (Transfer Pricing).

2. Country-by-Country Reporting (CbCR) and Master File (Section 286)

Adopted under BEPS Action 13, these provisions mandate large MNEs to disclose global income, tax, and economic activity across jurisdictions, improving transparency and accountability.

3. General Anti-Avoidance Rules (GAAR)

Implemented from April 2017, GAAR empowers tax authorities to disregard arrangements made primarily to obtain tax benefits.

4. Equalisation Levy and Significant Economic Presence (SEP)

Introduced to tax the digital economy, these measures capture revenue from non-resident e-commerce and online service providers, reflecting BEPS Action 1.

5. Multilateral Instrument (MLI)

India ratified the MLI in 2019, incorporating treaty-related BEPS measures and anti-abuse clauses like the Principal Purpose Test (PPT) across multiple tax treaties.

🌍 BEPS 2.0 and the Global Minimum Tax

In 2025, the focus shifted to BEPS 2.0, an advanced framework addressing digitalization and ensuring a fairer distribution of taxing rights.

• Pillar One: Allocates taxing rights to market jurisdictions where users or consumers are located, particularly for large digital and consumer-facing businesses.
• Pillar Two: Establishes a global minimum corporate tax rate of 15% to ensure that large multinational groups pay a fair share of tax regardless of where they operate.

India supports both pillars and actively engages in discussions to adapt its domestic tax laws to the global consensus.

🆕 Recent Developments (2024–2025)

India has continued to strengthen its BEPS-aligned measures with several recent updates:

• 🔹 The Income-tax Act, 2025: Brings simplified, BEPS-aligned provisions, strengthening digital taxation and compliance reporting measures, effective 1 April 2026.
• 🔹 Advancements in BEPS 2.0 Implementation:
  • OECD’s 2025 administrative guidance clarifies the Global Anti-Base Erosion (GloBE) rules under Pillar Two.
  • India has initiated stakeholder consultations for integrating the 15% global minimum tax into domestic law.
  • ICAI’s Diploma in International Taxation now includes modules on BEPS 2.0 and global compliance frameworks.
• 🔹 Strengthened Transfer Pricing Oversight: Updates to transfer pricing documentation standards emphasize benchmarking intangibles, risk analysis, and consistency in profit attribution.
• 🔹 Expansion of Digital Taxation (SEP): Proposals under consideration include revising SEP thresholds to capture digital revenues from online advertising, data monetization, and e-commerce platforms.
• 🔹 Global Engagement of Professional Bodies: Professional bodies like ICAI continue to collaborate with OECD and G20 working groups, submitting research-backed recommendations through its Direct Taxes Committee and International Taxation Committee.

🧩 Impact on Taxpayers and Professionals

The BEPS Explained framework has increased compliance and documentation requirements for multinational enterprises (MNEs).
Tax professionals now play a vital role in ensuring accurate reporting, transfer pricing analysis, and adherence to international norms.

ICAI, through its Direct Taxes Committee (DTC) and Committee on International Taxation, provides guidance, training, and resources to keep professionals updated on BEPS developments.

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🏁 Conclusion

BEPS Explained in simple terms: It’s a global tax reform initiative ensuring profits are taxed where real value is created.
The OECD’s BEPS framework, combined with India’s proactive measures—transfer pricing rules, digital taxation, and BEPS 2.0 adoption—has reshaped international taxation with fairness and transparency at its core.

As the digital economy expands, cooperation among governments, the OECD, and professional institutions like ICAI will remain key to achieving tax equity worldwide.