UPSC Prelims 2016 · Question 85 of 98
UPSC Prelims 2016 question on BEPS Tax Evasion
- ExamUPSC CSE
- Year2016
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicTaxation
- DifficultyEasy
- TypeDirect
The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of
Show answer
Answer: B. curbing of the tax evasion by multinational companies
Verdict
The answer is curbing of tax evasion by multinational companies. Base Erosion and Profit Shifting concerns aggressive tax avoidance.
Analysis
The OECD led project on Base Erosion and Profit Shifting addresses the erosion of a country's tax base through the accounting arrangements of multinational enterprises and the legal but abusive shifting of profits into low tax jurisdictions. Its 2015 final reports set out fifteen action points to curb such avoidance, and India as a participant was expected to implement several of them. The mining, genetic resources and environmental cost options describe other kinds of corporate conduct but have nothing to do with a tax base.
Source
Business Line explainer on BEPS.
How to crack it
Unpack the phrase, since base in fiscal vocabulary means the tax base and profit shifting means moving declared profit between jurisdictions, so the term can only concern taxation. Reading each word of an unfamiliar acronym for its domain specific meaning is more reliable than pattern matching to a familiar topic. Note the strict usage point too, that avoidance is legal and evasion illegal, and BEPS targets the grey zone between them.