The BEPS actions are a package of 15 measures developed by the OECD and G20 between 2013 and 2015 to close the gaps in international tax rules that let multinationals shift profits to low-tax jurisdictions where they have little real activity.1OECD. Action Plan on Base Erosion and Profit Shifting Four of the 15 are binding minimum standards that every member of the Inclusive Framework has agreed to implement and to be peer-reviewed on; the rest are best-practice recommendations. Over 145 jurisdictions now participate in the Inclusive Framework on BEPS.2OECD. Base Erosion and Profit Shifting The revenue at stake is estimated at $100 to $240 billion in lost corporate tax every year.3OECD. Information Brief – Base Erosion and Profit Shifting
How the 15 Actions Are Organized
The 15 actions sort into three purposes. Coherence measures stop multinationals from exploiting mismatches between countries’ tax systems. Substance measures push profits to be taxed where real work, risk-taking, and value creation actually happen. Transparency measures give tax authorities the data and dispute-resolution tools they need.
Four actions carry a stronger commitment. Every Inclusive Framework member has agreed to implement them and to submit to peer review by other members:2OECD. Base Erosion and Profit Shifting
- Action 5: countering harmful tax practices
- Action 6: preventing treaty abuse
- Action 13: country-by-country reporting
- Action 14: making cross-border dispute resolution more effective
Action 5: Countering Harmful Tax Practices
Before BEPS, some jurisdictions offered special low rates on income from patents, licenses, and other intellectual property without asking much of the taxpayer. Action 5 requires any such preferential regime to have a real link between the income receiving the benefit and the substantial activity that generated it. A patent box, for example, can grant a reduced rate on patent income only to the extent the taxpayer performed the underlying research and development.
Action 5 also introduced spontaneous exchange of information on tax rulings. When a tax authority issues a private ruling to a multinational, that ruling must now be shared with the tax authorities in other affected jurisdictions, so a company can no longer secure favorable treatment in one country while others remain unaware. The OECD’s Forum on Harmful Tax Practices reviews member regimes on an ongoing basis and publishes the results.
Action 6: Preventing Treaty Abuse
Tax treaties reduce withholding taxes and prevent the same income from being taxed twice. Multinationals have exploited them through treaty shopping: routing an investment through a third country solely to claim benefits that would not otherwise be available. Action 6 requires countries to build anti-abuse safeguards into their treaties.4OECD. Preventing Tax Treaty Abuse
The standard has two parts. Every covered treaty must include a preamble stating that the parties intend to eliminate double taxation without creating opportunities for non-taxation or tax avoidance.4OECD. Preventing Tax Treaty Abuse And the treaty must contain at least one substantive anti-abuse mechanism. Most jurisdictions use the Principal Purpose Test, which denies a treaty benefit if obtaining that benefit was one of the principal purposes of an arrangement. Some jurisdictions supplement or replace the PPT with a Limitation on Benefits clause, which restricts treaty benefits to a defined list of qualified persons based on measurable criteria such as ownership structure, business activity, and public trading status. A country meets the standard with the PPT alone, or with the PPT combined with a simplified or detailed LOB.
Action 13: Country-by-Country Reporting
Action 13 introduced a three-tiered documentation system. The Master File gives a high-level overview of the multinational group’s global operations, structure, intangible assets strategy, and intercompany financing. The Local File zooms in on the specific transactions of each local entity, including a functional analysis that justifies the arm’s length pricing used for intercompany deals.
The third tier is the one that most changed tax administration. Groups with consolidated revenue of €750 million or more must file a standardized annual Country-by-Country Report breaking down key financial data for every jurisdiction where they operate, including revenue, profit before tax, taxes paid and accrued, number of employees, and stated capital.5OECD. Guidance on the Implementation of Country-by-Country Reporting – BEPS Action 13 Tax authorities use the report as a risk assessment tool: when a group books large profits in a jurisdiction where it has few employees and minimal assets, that pattern flags potential profit shifting for further review.
Action 14: Improving Dispute Resolution
When two countries both claim the right to tax the same income, the taxpayer gets caught in the middle. The mutual agreement procedure has long been the treaty mechanism for resolving these disputes, but before BEPS the process was slow, opaque, and inconsistent. Action 14 sets a minimum standard of 21 elements and 12 best practices that evaluate a jurisdiction’s legal and administrative framework for handling MAP cases.6OECD. Dispute Resolution in Cross-Border Taxation Member jurisdictions commit to timely resolution, published MAP profiles, and public statistics on case volumes and resolution times. Some jurisdictions have gone further by adopting mandatory binding arbitration, which forces a resolution when the two authorities cannot agree within a set timeframe.
The Coherence Actions: 2, 3, and 4
Action 2 targets hybrid mismatch arrangements. A hybrid mismatch happens when a payment, entity, or financial instrument is treated differently in two countries, often producing a deduction in one country with no corresponding income in the other, or the same expense being deducted twice. The recommendations neutralize these outcomes by requiring the country granting the deduction to deny it when the matching income escapes taxation, or by requiring the other country to include the income.7OECD. Hybrid Mismatch Arrangements – Corporate Tax Statistics
Action 3 strengthens controlled foreign company rules, which prevent a parent from parking income in a foreign subsidiary in a low-tax jurisdiction and deferring tax on that income indefinitely. The recommendations cover which entities and income types to target, how to compute the income, and how to prevent double taxation when the income is later repatriated.
Action 4 limits how much interest expense a multinational can deduct against its taxable income. Without limits, a group can load a subsidiary in a high-tax country with intercompany debt and deduct the interest payments there while the corresponding interest income surfaces in a low-tax jurisdiction. The recommended approach caps net interest deductions at a fixed percentage of the entity’s EBITDA, with the OECD suggesting a corridor between 10% and 30%.8OECD. Limiting Base Erosion Involving Interest Deductions and Other Financial Payments – Action 4 Countries can pair the fixed ratio with a group ratio rule that allows higher deductions when the group’s overall leverage justifies them.
The Substance Actions: 7, 8, 9, and 10
Transfer pricing, the pricing of transactions between related entities in the same group, has been the most common vehicle for profit shifting. Actions 8, 9, and 10 overhauled the arm’s length principle so that profits are allocated to the entity that actually controls economically significant risks and has the financial capacity to bear them. A subsidiary that assumes risk on paper through a contract, but does nothing to manage it, no longer keeps the associated profits; those profits are reallocated to the operating entity that performs the real control functions.
A particularly difficult area is hard-to-value intangibles such as newly developed patents or proprietary technology, where future revenue is highly uncertain at the time of transfer. The BEPS guidance allows tax authorities to use actual outcomes as evidence of whether the original transfer price was reasonable.9OECD. Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles The taxpayer can rebut a reassessment by showing that the initial valuation was reasonable given the information available at the time.
Action 7 addresses permanent establishment. Before BEPS, multinationals could structure local operations to stay just below the threshold that would trigger a taxable presence in a country, using commissionaire arrangements or fragmenting activities so each piece alone fell within an exemption. The revised standards close those loopholes.
The Transparency Action Beyond CbCR: Action 12
Action 12 promotes mandatory disclosure rules, which require taxpayers and, in many jurisdictions, their tax advisors to report potentially aggressive tax planning arrangements to the tax authority. The point is early warning. Instead of discovering an avoidance scheme years later during an audit, the authority learns about it while it is still being marketed, and can either close the loophole through legislation or launch targeted examinations before revenue losses accumulate.
How the Treaty Measures Get Into Force: The Multilateral Instrument
Implementing the treaty-related BEPS measures through traditional channels would have required renegotiating thousands of bilateral treaties individually. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, known as the MLI, lets jurisdictions modify their existing treaties through a single instrument.10OECD. BEPS Multilateral Instrument
A bilateral treaty is modified only when both countries have signed and ratified the MLI and both have listed that specific treaty as a Covered Tax Agreement. Countries can enter reservations to opt out of particular provisions, so the MLI’s effect varies with what both treaty partners accepted. As of the most recent data, 107 jurisdictions have signed or joined the MLI and it covers approximately 1,950 bilateral tax treaties.11OECD. Signatories and Parties – BEPS MLI Positions
The MLI delivers the treaty-related items, chiefly the anti-treaty-shopping provisions from Action 6 and the permanent establishment changes from Action 7. Actions that require domestic law changes, such as interest limitation and hybrid mismatch rules, are implemented through national statutes instead.
What Came After: Pillar One and Pillar Two
The original 15 actions did not fully resolve the tax challenges of the digital economy, where a company can generate billions in revenue from a country’s consumers without any physical presence there. The Two-Pillar Solution, sometimes called BEPS 2.0, followed.
Pillar One
Pillar One’s centerpiece is Amount A, a new taxing right for market jurisdictions, meaning the countries where customers and users are located. Amount A applies only to multinationals with global revenue above €20 billion and profitability above a 10% margin.12OECD. Progress Report on Amount A of Pillar One Fact Sheet For companies that meet those thresholds, 25% of profit above the 10% margin gets reallocated to market jurisdictions based on where revenue is sourced.13OECD. Multilateral Convention to Implement Amount A of Pillar One Overview Extractives and regulated financial services are out of scope. The revenue threshold is expected to drop to €10 billion after a seven-year review, contingent on successful implementation.
Amount A requires a Multilateral Convention to take effect, and as of early 2025 that convention was not yet open for signature, with a small number of jurisdictions still holding outstanding disagreements.14OECD. Multilateral Convention to Implement Amount A of Pillar One A separate component, Amount B, simplifies the transfer pricing analysis for routine marketing and distribution activities in a market jurisdiction and has been incorporated into the OECD Transfer Pricing Guidelines for jurisdictions that choose to apply it.15OECD. Pillar One – Amount B
Pillar Two
Pillar Two establishes a 15% global minimum effective tax rate for multinational groups with consolidated annual revenue of €750 million or more.16OECD. Pillar Two Model Rules in a Nutshell If a group pays less than 15% effective tax on its profits in any jurisdiction, someone collects the difference. The Global Anti-Base Erosion (GloBE) rules determine who.17OECD. Global Anti-Base Erosion Model Rules (Pillar Two)
- A Qualified Domestic Minimum Top-up Tax lets the low-tax country itself impose the top-up before any other country can claim it, keeping the revenue where the income was earned.
- An Income Inclusion Rule lets the parent entity’s country collect the top-up on a subsidiary’s undertaxed income when the source country has not enacted a QDMTT, working top-down through the ownership chain.
- An Undertaxed Profits Rule acts as a backstop, letting other jurisdictions where the group operates impose the top-up if neither the source country nor the parent’s country has collected it.
The rules recognize that not all low-taxed income results from profit shifting. A substance-based income exclusion carves out 5% of the carrying value of tangible assets in the jurisdiction plus 5% of payroll for employees performing activities there.18OECD. FAQs – Global Anti-Base Erosion Model Rules A ten-year transition period started at higher rates, 10% for payroll and 8% for tangible assets, declining gradually to the permanent 5% level.
Alongside the GloBE rules, Pillar Two includes a Subject to Tax Rule, a treaty-based provision particularly important for developing countries. The STTR lets a source country impose additional tax on certain cross-border payments between related companies when the recipient is subject to a nominal tax rate below 9%.19OECD. Subject to Tax Rule – Pillar Two The covered payments include interest, royalties, service fees, insurance premiums, and payments for distribution rights. The source country can tax back up to the 9% rate on the gross amount.
Where Implementation Stands
Pillar Two has moved faster than any other part of the project. Dozens of countries enacted GloBE legislation with the IIR and QDMTT taking effect for fiscal years beginning on or after December 31, 2023, in the first wave, including the EU member states, the United Kingdom, Canada, Australia, South Korea, and Japan. The UTPR followed in most of those jurisdictions for fiscal years beginning on or after December 31, 2024. Several jurisdictions that previously had no corporate income tax, including Bahrain and the Bahamas, enacted domestic minimum top-up taxes to collect the revenue themselves rather than cede it to a parent company’s home country.
The United States has taken a different path. In 2025 the U.S. Treasury announced an agreement within the Inclusive Framework to exempt U.S.-headquartered companies from Pillar Two’s requirements, with those companies remaining subject to U.S. global minimum taxes instead.20U.S. Department of the Treasury. Treasury Secures Agreement to Exempt U.S.-Headquartered Companies The United States has not enacted legislation implementing the GloBE rules domestically.
Pillar One’s Amount A remains stalled, with the required Multilateral Convention not open for signature as of early 2025.14OECD. Multilateral Convention to Implement Amount A of Pillar One The longer that convention remains unsigned, the more pressure builds on individual countries to pursue unilateral digital services taxes.