Base erosion and profit shifting
Have you ever played hide and seek? Imagine that you have candy, and you want to hide it from everyone, so nobody can take it away. Base erosion and profit shifting is a bit like hiding the candy, but instead of candy, it is money, and instead of playing with friends, it is companies who try to hide the money.
So, let’s say you have a toy store. You sell toys to people and earn money from it. However, the government asks you to pay some of that money in taxes, which means you have to give some money to the government. But what if you don't want to give away so much money? That's where base erosion and profit shifting comes in.
Some companies try to move their money to other countries where taxes are lower, so they can keep more money for themselves. They do this by moving their headquarters to another country, even though they still do most of their business in the original country. This way, they can pay less tax in the original country because they are technically based somewhere else.
Another way companies hide their money is by manipulating the prices of the things they buy and sell within their own company. For example, if you owned a toy company that sells to other companies, you could sell the toys for a higher price to your subsidiary company in a country with lower tax rates. This would mean that your subsidiary company would end up making less profit (because they paid more for the toys), and they would pay less tax in that country. Meanwhile, your main company would pay less tax in the original country because they would be making less profit overall.
So why is this a problem? Well, if companies don't pay their fair share of taxes, then the government doesn't have as much money to spend on things like schools, hospitals, or roads. Also, companies that don't pay their taxes put honest businesses at a disadvantage because they have to pay their taxes in full, which makes it harder for them to compete with the cheating companies.
To sum it up: Base erosion and profit shifting is when companies try to hide their money from the government by moving it to other countries or manipulating the prices of what they buy and sell within their own company, so they can pay less tax. It's a bit like hiding candy from your friends, but instead of candy, it's money, and instead of playing with friends, it's companies who try to do it. However, it's not fair because it means they don't pay their fair share of taxes, which hurts honest businesses and the government's ability to provide important services.
So, let’s say you have a toy store. You sell toys to people and earn money from it. However, the government asks you to pay some of that money in taxes, which means you have to give some money to the government. But what if you don't want to give away so much money? That's where base erosion and profit shifting comes in.
Some companies try to move their money to other countries where taxes are lower, so they can keep more money for themselves. They do this by moving their headquarters to another country, even though they still do most of their business in the original country. This way, they can pay less tax in the original country because they are technically based somewhere else.
Another way companies hide their money is by manipulating the prices of the things they buy and sell within their own company. For example, if you owned a toy company that sells to other companies, you could sell the toys for a higher price to your subsidiary company in a country with lower tax rates. This would mean that your subsidiary company would end up making less profit (because they paid more for the toys), and they would pay less tax in that country. Meanwhile, your main company would pay less tax in the original country because they would be making less profit overall.
So why is this a problem? Well, if companies don't pay their fair share of taxes, then the government doesn't have as much money to spend on things like schools, hospitals, or roads. Also, companies that don't pay their taxes put honest businesses at a disadvantage because they have to pay their taxes in full, which makes it harder for them to compete with the cheating companies.
To sum it up: Base erosion and profit shifting is when companies try to hide their money from the government by moving it to other countries or manipulating the prices of what they buy and sell within their own company, so they can pay less tax. It's a bit like hiding candy from your friends, but instead of candy, it's money, and instead of playing with friends, it's companies who try to do it. However, it's not fair because it means they don't pay their fair share of taxes, which hurts honest businesses and the government's ability to provide important services.
Related topics others have asked about: