Foundations of Taxation Law

This chapter focuses on the problem of ‘base erosion and profit shifting’ (‘BEPS’). BEPS typically involves large multinational enterprises (‘MNEs’) entering into transactions that exploit gaps, loopholes and mismatches in the tax rules of different jurisdictions in order to artificially shift profits from high to law tax locations. International tax havens are commonly used for this purpose. To help countries tackle BEPS, the OECD implemented the ‘BEPS project’, which has over 100 participating jurisdictions. As a consequence of this project, Australia has introduced several new measures to strengthen its tax system. These measures complement its existing transfer pricing and thin capitalisation regimes. One of the most significant aspects of the BEPS project has been the development of a ‘two-pillar solution on global tax reform’. This initiative aims to re-allocate profits of large MNEs to those jurisdictions where they are earned and ensure that MNEs pay a worldwide minimum corporate tax rate of at least 15%. Australia, like many other countries, is planning to implement this reform. This chapter outlines how the new rules are proposed to operate.