What is BEPS?

How it works

BEPS launched in 2013 as a coordinated OECD/G20 response to public outrage over Apple, Google, Starbucks and others paying minimal tax through aggressive profit-shifting structures. The original BEPS Action Plan delivered 15 Actions in 2015, addressing the gaps that allowed legal-but-aggressive tax planning. The project then evolved into the Inclusive Framework on BEPS (140+ countries) and the broader Pillar One / Pillar Two reforms.

The 15 BEPS Actions, grouped:

Coherence (preventing double non-taxation):

1. Digital economy challenges
2. Hybrid mismatch arrangements
3. CFC rules — see CFC Rules
4. Interest deduction limitations (debt push-down)
5. Harmful tax practices

Substance (matching tax with real activity): 6. Treaty abuse — introduced PPT and reinforced LOB 7. Permanent establishment definition — broader scope, see PE 8-10. Transfer pricing — aligning intangibles, risk and capital with substance, see Transfer Pricing

Transparency: 11. BEPS data and analysis 12. Mandatory disclosure rules — see MDR 13. Country-by-country reporting (CbCR) — Form 8975 in the US for $850M+ groups 14. Dispute resolution improvements

Implementation: 15. Multilateral Instrument (MLI) — single treaty modifying ~3,000 bilateral treaties simultaneously

Pillar One and Pillar Two

The original BEPS framework didn't fully solve the digital economy challenge (Action 1). The 2019-2021 work split it into two pillars:

• Pillar One — reallocates taxing rights on a portion of profits of the very largest multinationals (Amount A) to market jurisdictions, regardless of physical PE. Stalled in 2024-2026 — political consensus elusive.
• Pillar Two — 15% global minimum effective tax rate for groups with consolidated revenue ≥ €750M. Implemented from 2024 in EU, UK, Korea, Japan, Australia, Canada. The US has not formally implemented but qualifies for a side-by-side safe harbour per the OECD's 2025 administrative guidance.

What this means for SMEs

The €750M threshold for Pillar Two excludes most SMEs. But other BEPS Actions cascade down:

• Action 6 (PPT) affects every cross-border treaty claim — even a single dividend payment from France to a Cypriot holding can fail PPT.
• Action 7 (PE) broadened the definition of taxable presence — a dependent agent in a foreign country can create a PE at much lower thresholds than before.
• Action 13 (CbCR) has cascaded into local-file documentation requirements for groups with €50M+ cross-border related-party transactions in many jurisdictions.
• Substance requirements introduced by former tax havens (BVI, Cayman, Bermuda Economic Substance Acts) directly result from BEPS Action 5.

Common mistakes

• Assuming "I'm small, BEPS doesn't apply". Pillar Two doesn't, but PPT, PE rules, treaty anti-abuse, and substance requirements all do.
• Treating BEPS as historical. The reform programme is active and ongoing — Pillar Two safe harbour rules updated through 2025-2026.
• Ignoring CbCR even when below the €750M threshold. Many jurisdictions require local-file documentation for far smaller cross-border groups.
• Trusting pre-2017 holding structures. PPT + LOB + beneficial-owner challenges + GAAR all neutralise structures that worked before BEPS.