Profit shifting: a simPle

The taxation of multinational corporations (MNCs) is an arcane topic that has traditionally been of interest only to a small coterie of specialists. Recently, however, it has attracted an unprecedented level of political attention and public interest. The leaders of the G-20 group of nations issued a communiqué following their meeting in Los Cabos, Mexico in June 2012, stating that: “We reiterate the need to prevent base erosion and profit shifting and we will follow with attention the ongoing work of the OECD [Organization for Economic Cooperation and Development] in this area.”3 This “ongoing work” – the OECD’s initiative on “base erosion and profit shifting” (BEPS) – has led to a major report issued in February 2013 (OECD 2013a) and to an action plan produced in July 2013 (OECD 2013b). The latter consists of fifteen specific action items that are intended to facilitate multilateral cooperation among governments with regard to the taxation of MNCs, with the general objective of seeking to “better align rights to tax with economic activity” (OECD 2013b, 11). In September 2014, the OECD released a set of recommendations to address seven of these action items (OECD 2014).