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Published: March 2, 2022

Last Updated: March 4, 2022

What is the BEPS Project?

Have you ever heard of the “Double Irish, Dutch Sandwich”? It is a complicated tax arrangement involving a parent corporation and three subsidiary corporations: a Dutch corporation and two Irish corporations – one located in Ireland and one located in a tax haven. According to the Irish Times, Google used this type of arrangement to shift $75.4 billion USD out of Ireland in 2019.

As described by ABC News (Australia), the corporations in a “Double Irish, Dutch sandwich” form effectively a chain or pathway which allows money to travel between them in the following order: parent corporation, Irish corporation (Ireland), Dutch corporation and Irish corporation (tax haven). To legally move the money with minimal tax incurred, each corporation charges expenses to the prior corporation in the chain, and offsets the income they earn by paying expenses to the next corporation in the chain. The tax haven corporation does not need to offset its income as it enjoys a 0% corporate tax rate. These corporations are taking advantage of local tax laws and international tax agreements to avoid paying any tax on the funds in any individual country, or as the funds are moved between countries.

“Double Irish, Dutch Sandwich” is also an example of base erosion and profit shifting – or BEPS. According to the Organisation for Economic Co-operation and Development (OECD), BEPS occurs where multinational corporations take advantage of the inconsistencies between countries in tax law and tax administration to avoid taxation. BEPS practices are largely not illegal, but rather exploit current tax laws to the advantage of the company attempting to avoid paying tax. The OECD estimates that BEPS costs countries billions of dollars in lost tax revenues each year. To combat BEPS, the OECD introduced its BEPS project which coordinates efforts between member countries to limit exploitable inconsistencies in tax administration and eliminate tax avoidance.

How does the OECD BEPS project eliminate BEPS?

The OECD’s website on the BEPS project outlines the 15 actions presently involved in the BEPS project. These can be summarized as follows.

Taxation in a Digital Economy

The growth of the digital economy has raised extensive challenges for countries both by increasing mobility for companies and individuals, and creating ways to work around antiquated tax laws which are often based on physical location. Action 1 is centered on coordinating a global effort to address these issues.

The OECD’s BEPS project Pillar 1 and 2 recommended countries remove any sales tax for digital services and goods known as Digital Services Tax until the member states could agree to a multinational agreement on Digital Services Tax. This multinational agreement would ensure consistent application of Digital Services Tax across countries. Despite many countries agreeing to work on this multinational agreement, Canada, amongst other countries, is still implementing Digital Services Tax. In a press release, Canada’s Department of Finance described the proposed 3% tax as an interim measure to ensure Canada did not lose potential tax revenues while a multinational agreement was negotiated.

Transparency, Research and Mandatory Reporting

Actions 11 – 13 are information focused. These actions involve monitoring the impact of the BEPS project, as well as reporting data to identify aggressive tax planning, and increase transparency with regards to large multinational enterprises. Canada has enacted section 233.8 of the Income Tax Act to address Action 13 Country-to-Country reporting. Country-to-Country reporting requires multinational enterprises to disclose certain financial information which increases transparency on their operations and where taxes are paid, allowing countries to better administer tax audits and other tax enforcement.

Targeting Specific BEPS Strategies and Tools

Actions 2-10 target specific laws and legal instruments which large multinational companies utilize to engage in BEPS. For example, Action 6 deals with treaty shopping. Many countries have entered bilateral treaties (i.e. a treaty between two countries) to limit double-taxation for individuals and businesses. For example, a tax treaty may require that pension income be taxed in the country where the payor is located even if the payee is located in another country. Treaty shopping refers to individuals or companies putting in place arrangements which allow them to benefit from these tax treaties arrangements.

Like many BEPS strategies, treaty shopping is generally completely legal. The individuals and companies engaging in treaty shopping are following the letter of the law, but result in unintended benefits which cost countries tax revenue. In a recent case Canada v. Alta Energy Luxembourg S.A.R.L., the Supreme Court of Canada even found that treaty shopping did not violate the General Anti-Avoidance Rule – a Canadian tax rule meant to catch tax avoidant behavior that is not strictly covered in the current provisions of the Income Tax Act. Through Action 6, strategies like model tax treaty provisions are implemented to limit opportunities for treaty shopping.

Dispute Resolution

Action 14 – Mutual Agreement Procedure is intended to give the competent authority of each country – such as the Canada Revenue Agency here in Canada – the means of effectively resolving differences in interpretation of tax treaties with the goal of ensuring tax treaties are properly implemented.

Multilateral Instrument

Action 15 is the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “Convention”). This convention is designed to modify existing bilateral tax treaties to create consistency in international tax rules without requiring modification of each individual tax treaty. Each country becomes a signatory and party to the Convention provides a list of their tax treaties to which they would like the Convention to apply. If both countries who are party to a particular bilateral treaty list the same treaty, that treaty is considered “matched” and the Convention applies to it.

As an example of the BEPS at work the OECD recently announced that member states, on a voluntary basis, will implement a minimum 15% corporate tax rate on multinational companies with global revenues exceeding 750 million Euros. (about $1,112 million CAD). The minimum corporate tax rate will limit opportunities for large corporations to move profits to foreign countries to avoid corporate tax.

Criticism of BEPS

Although a complete review of criticisms of the OECD BEPS project would be too extensive for the scope of this article, it is worth noting a few examples of criticisms the project has received.

  • Switzerland, according to the European Network on Debt and Development, has previously indicated that it will prioritize information sharing with the countries with which it has the closest relations. If Switzerland and other countries engage in this selective information sharing, it undermines the transparency principles of the BEPS project.
  • There have been numerous concerns about developing countries not receiving equal benefits from the BEPS project. For example, Daniel Oberko discusses in his article “Developing countries and their workers ditched by the OECD in tax reform proposal” how an OECD proposal to divide profits of individual companies between countries based on where sales are made would injure developing countries which tend to have relatively small markets.

In her article “Global tax deal seeks to end havens, criticized for ‘no teeth’”, Leigh Thomas discussed criticism which has been raised about the 15% minimum tax rate discussed above, including concerns the provisions have too many loopholes to be enforced effectively and that the goal to implement this tax rate by 2023 is too onerous for some countries.

Pro Tax Tips: What does BEPS mean for Canadian Individuals and Corporations?

The impact of the BEPS project for Canadian individuals and corporations are both direct and indirect. Ideally, the BEPS project will allow Canada to capture additional tax revenues it is currently losing to BEPS. These tax revenues can be used for public spending projects and other indirect benefits. Actions such as the digital economy may be more directly noticed by individuals and corporations, such as price changes to account for any taxation on digital goods. It is worth noting many of the BEPS actions are targeted towards large, international corporations and corporate groups meaning Canadian individuals and most Canadian corporations will not be impacted directly by these actions.

The BEPS project will also likely necessitate additional work to understand the applicable tax law. For example, an experienced Canadian tax lawyer used to just interpret the bilateral tax treaty and applicable case law. Now, that same Canadian tax lawyer may need to review the tax treaty, the Convention, case law and any dispute resolution decisions where applicable to interpret the same agreement.  Our experienced Canadian tax lawyers can assist in interpreting the impact of BEPS project changes on your tax reporting.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."


Base Erosion and Profit Shifting – or BEPS occurs where multinational corporations take advantage of the inconsistencies between countries in tax law and tax administration to avoid taxation.

Generally, no. Most activity that falls under BEPS is completely legal as it involves exploiting existing tax laws and administration.  Targeting BEPS largely involves closing these taxation loopholes to minimize the impact of BEPS.

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