Q. With reference to Base Erosion and Profit Shifting (BEPS), consider the following statements:
1.It involves tax avoidance by exploiting loopholes in taxation system of the countries
2.BEPS has been deemed illegal globally.
Which of the above statements is/are correct? 
Answer: A
Notes:
- Statement 1 is correct: BEPS refers to “tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid
- Statement 2 is incorrect: As per OECD, in most cases BEPS strategies are not illegal. Largely they just take advantage of current rules that are still grounded in a bricks and mortar economic environment rather than today’s environment of global players which is characterized by the increasing importance of intangibles and risk management. That said, some of the schemes used are illegal and tax administrations are fighting them.
