In 2015, OECD and G20 set up an international framework, dubbed the OECD/G20 BEPS Project (the Inclusive Framework), to combat tax avoidance by multinational enterprises (MNEs) using base erosion and profit shifting tools.  The aim of the project is to mitigate tax loopholes so that corporations cannot shift profits from a country with a high corporate tax rate to countries with a low tax rate.  

The project is now in its implementation phase, 141 countries and jurisdictions are involved including a majority of developing countries. Kenya joined the Inclusive Framework in 2017 and has been an active participant since.  Participating countries of the project set up 15 Action Plans (The BEPS action plan) to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to locations with no/low tax rates and no/little economic activity.  This results in little or no corporate tax being paid, as well as annual revenue losses for governments. OECD estimates that globally, governments lose at least 100 – 240 billion USD, equivalent to 4 – 10% of global corporate income tax revenue.

Implementation of the 15 Actions of the BEPS package is underway. Action 1 of the BEPS package addresses the digital economy.  Participating members of the project have been working on consensus-based, long-term solutions to the tax challenges arising from the digitalization of the economy. The consultations resulted in the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy that was published on 8th October 2021.

The deal offers a common approach to taxation of the digital economy globally. Interested countries and jurisdictions can participate by joining the Statement. In terms of consensus, 137 out of the 141 OECD IF countries and jurisdictions have joined the Statement.