	Introduction

Base erosion and profit shifting (BEPS) are "tax-avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations." For example, countries worldwide can experience reduced tax collections through various mechanisms that firms use to shift corporate profits out of higher tax jurisdictions into lower tax jurisdictions and other mechanisms that reduce interest, dividend, and royalty taxes. The Organization for Economic Cooperation and Development (OECD) has been engaged in an ongoing project to reduce BEPS. In October 2015, the OECD published its final list of 15 BEPS action items to equip governments with measures to address tax avoidance (although some updated or additional material has been provided). Some of these proposals can be (or have been) implemented in the United States and in other countries through administrative actions, and others would require legislative action. The OECD framework was adopted by the G-20 Finance Ministers in February 2016. All OECD and G-20 countries agreed to implement four minimum BEPS standards: 
1. Action 5, countering harmful tax practices (mostly aimed at patent boxes); 2. Action 6, preventing treaty abuse (largely about arranging payments to flow through countries with treaties that reduce withholding taxes on dividends and other passive payments); 3. Action 13, country-by-country (CbC) reporting; and 4. Action 14, increasing the effectiveness of dispute resolution. In contrast, the United States risks losing some revenue if other countries increase their taxation of U.S. firms, even if that income was previously in low-tax jurisdictions, because the United States has a worldwide tax system that taxes income of foreign subsidiaries when repatriated but provides a foreign tax credit (i.e., credits for foreign taxes paid offset U.S. tax on foreign source income). The Senate Finance Committee requested that the Government Accountability Office (GAO) study BEPS actions; GAO's study focused on transfer pricing guidance and documentation, including CbC reporting. At the same time, a uniform set of standards and reporting requirements may be beneficial to U.S. multinationals, as many countries might otherwise have enacted unilateral changes in rules and reporting standards. An important approach used by multinational corporations, cost-sharing arrangements, also appears incompatible with the transfer pricing guidelines. It then discusses the various action items organized into Action Item 1, which relates to the digital economy and proposes standards only with respect to VATS; Action Items 2-5, 7, and 8-10, items related primarily to profit shifting; Action Item 5, which relates to harmful tax practices; Action Item 6, regarding tax treaties; and Action Items 11-15, which are primarily administrative in nature. As noted above, the creation of a hybrid entity by check-the-box can also lead to reducing profit taxable by the U.S. system, although it is not clear whether the United States or other high-tax countries lose revenue. The standard for transfer pricing is that goods and assets bought and sold between related firms should reflect arm's length pricing, that is, the price that would be paid by two unrelated firms. The subsidiary pays for a share of the research costs in the United States in return for a share of the rights (to future technological advances). A network of such treaties exists around the world. A number of countries have already agreed to the permanent establishment rules. In general, related corporations do not have the same ability to transfer risk as unrelated corporations." U.S. Coverage of acquired patents would be limited. U.S. It summarizes BEPS indicators, including (1) profit rates of affiliates in low-tax countries are higher than the multinational firms' worldwide profit; (2) effective tax rates of large multinationals are lower (by 4 to 8.5 percentage points) than those of similar domestic firms; (3) foreign direct investment is increasingly concentrated in countries with high ratios of investment to gross domestic product (GDP); (4) the separation of taxable profits from the location of value-creating activities is especially clear with intangibles and has grown (e.g., royalties compared with R&D spending are six times higher in low-tax countries than on average and have increased three-fold between 2009 and 2012); and (5) debt is more concentrated among affiliates in high-tax countries (e.g., ratios are three times higher than worldwide firm ratios). Another indicator of profit shifting out of the United States is the share of taxable income as a ratio of GDP, made possible by tax data on the distribution of profits of foreign affiliates by country that is available in the United States, but not in general in other countries. The United States has opted for bilateral treaties because of concerns about confidentiality and inappropriate use.
Taxes collected by countries around the world can be reduced through various avoidance mechanisms that shift corporate profits out of higher-tax-rate jurisdictions into lower-tax-rate jurisdictions and through other mechanisms that reduce taxes on interest, dividends, and royalties. The Organization for Economic Cooperation and Development (OECD) has been engaged in a project to reduce such base erosion and profit shifting (BEPS) in which firms use tax-avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low- or no-tax locations. In October 2015, the OECD published its final list of 15 BEPS action items. The OECD framework was endorsed by the G-20 Finance Ministers in February 2016.
All OECD and G-20 countries agreed to implement four minimum BEPS standards:
1. Action 5, countering harmful tax practices (mostly aimed at patent boxes); 2. Action 6, preventing treaty abuse (largely about arranging payments to flow through countries with treaties that reduce withholding taxes on dividends and other passive payments); 3. Action 13, country-by-country (CbC) reporting; and 4. Action 14, increasing the effectiveness of dispute resolution.
These action items have led to limited changes to U.S. companies because of either a lack of relevance (no patent box regime exists in the United States) or existing practices, although CbC reporting requires additional information from U.S. multinationals.
Although implementation of some items can be done through regulation, others would require legislation or treaty amendments, which must be approved by the Senate. Other than the four agreed-upon standards, the remaining proposals are not specific recommendations because there was no agreement among the countries.
Action Item 1 contains an extensive discussion of the digital economy, but its proposals relate only to the value added tax (VAT), which the United States does not have. Action Items 2-4 and 7-10 relate to profit shifting by multinational firms via a variety of mechanisms, including locating interest deductions in high-tax countries or through transfer prices of the sales of goods and services between related corporations. The United States has generally adopted few changes, although present practices in many aspects already embody the standards. One instance in which U.S. rules appear at variance with OECD proposals are check-the-box rules, which create hybrid entities with, for example, interest deducted in one country but not taxed in another.
The OECD standards for transfer prices stress that the allocation of income should reflect functions, assets, and risks that are controlled and assumed, rather than contractual arrangements. Cost-sharing arrangements commonly used in the United States, which allow foreign subsidiaries to provide financing for research in the United States in exchange for a share of profits, is also an area in which U.S. practice appears inconsistent with BEPS proposals. The Government Accountability Office (GAO), in a study of the transfer-pricing issues, while indicating that a move from contract to content would reduce profit shifting, argued that risk could not be transferred between related firms in the same way as between unrelated firms.
The United States and other countries would benefit by gaining revenues from reductions in base erosion and profit shifting which, according to Action Item 11 on measuring and monitoring BEPS, costs between 4% and 10% of global corporate tax revenues. There have, however, been concerns that the United States risks losing some revenue and companies paying additional taxes if other countries inappropriately increase their taxation of U.S. firms, eventually generating foreign-tax credits that offset U.S. income tax. These effects might occur through changes in the definition of permanent establishment and through the use of CbC data to move to an effective formula-based approach to taxation, which could produce double taxation. At the same time, a uniform set of standards and reporting requirements may be beneficial, as many countries were proceeding to enact unilateral changes and reporting requirements prior to the OECD project.
Concerns have also been expressed by firms regarding confidentiality and compliance costs of CbC reporting. The United States has opted for bilateral agreements to share CbC data in part to help ensure confidentiality.