Direct Tax Laws & International Taxation · Latest Developments in International Taxation

BEPS Action Plans and Inclusive Framework for CA Final

Updated 5 October 2026 · Fact-checked

BEPS means Base Erosion and Profit Shifting: tax planning that moves profits to low-tax places where little real activity exists. The OECD/G20 BEPS project gave 15 Action Plans to stop it. To answer a question, name the Action, state its aim, then link it to the facts and to India's response.

Understand BEPS Action Plans and Inclusive Framework

Companies in a group can arrange their dealings so that profit shows up in a low-tax country while the real work happens elsewhere. Each country's rules may be followed, yet the group pays very little tax overall. This is base erosion (the tax base of a high-tax country shrinks) and profit shifting (profit moves to a low or nil tax jurisdiction).

The OECD/G20 BEPS project was launched to fix this. In 2015 it produced a package of 15 Action Plans. The central idea is simple: tax should be paid where the economic activity happens and where value is created.

The main Actions are grouped under four themes: coherence (Actions 2, 3, 4, 5), substance (Actions 5, 6, 7, 8-10), transparency (Actions 11, 12, 13) and certainty (Action 14). Action 1 (digital economy) and Action 15 (multilateral instrument) are standalone Actions that sit outside these four themes. Some Actions are only recommendations or best practices. Four are minimum standards, which all participating countries have committed to implement. These are Action 5 (harmful tax practices), Action 6 (treaty abuse), Action 13 (transfer pricing documentation and country-by-country reporting) and Action 14 (dispute resolution).

The Inclusive Framework on BEPS was set up so that non-OECD countries could join on an equal footing. Members commit to the minimum standards and are peer-reviewed on them. India is a member of the Inclusive Framework and has taken part in the project from the start as a G20 country.

For your exam, keep one idea in mind: each Action targets a specific tax-planning trick. If you can match the trick to the Action, you can answer most questions.

Key rules to remember

Meaning of BEPS: BEPS = Base Erosion + Profit Shifting, achieved by using gaps and mismatches between tax systems; Write this first in any theory answer.
The 15 Actions: 1 Digital economy | 2 Hybrid mismatch | 3 CFC rules | 4 Interest deductions | 5 Harmful tax practices | 6 Treaty abuse | 7 PE status | 8-10 Transfer pricing and value creation | 11 Measuring BEPS | 12 Mandatory disclosure | 13 TP documentation and CbCR | 14 Dispute resolution | 15 Multilateral instrument; Actions 8, 9 and 10 are usually grouped as transfer pricing outcomes aligned with value creation (intangibles, risks and capital, other high-risk transactions).
Four minimum standards: Action 5, Action 6, Action 13, Action 14; Memory hook: 5-6-13-14. Members are peer-reviewed on these.
Four themes of the project: Coherence (2, 3, 4, 5) | Substance (5, 6, 7, 8-10) | Transparency (11, 12, 13) | Certainty (14) | Standalone Actions outside these themes: Action 1 (digital economy) and Action 15 (MLI); Do not confuse these themes with Pillar One and Pillar Two, which are later work on digitalisation. Use the grouping for structure, but focus on what each Action does.
Action 15 outcome: Action 15 = Multilateral Instrument (MLI) to update treaties quickly; The MLI modifies existing bilateral treaties without renegotiating each one.

How to solve BEPS Action Plans and Inclusive Framework questions

Use this method for any question on BEPS, whether it asks for a summary, a minimum standard or a case application.

1Define BEPS in one line: tax planning that shifts profit away from where value is created, using gaps in rules.
2Identify the trick in the facts: digital presence without PE, hybrid instrument, low-tax shell, high interest to a group lender, treaty shopping, artificial PE avoidance, or weak documentation.
3Match the trick to the Action number and name it correctly.
4State whether that Action is a minimum standard (5, 6, 13, 14) or a recommendation or best practice.
5Explain what the Action requires in plain words, such as substance requirement, principal purpose test, three-tier documentation or peer review.
6Link to India: mention the Inclusive Framework membership and the Indian rule or practice that corresponds, only where you are sure of it.
7Conclude in one line applying the Action to the facts given.

Quickest way: Trick-to-Action matching

When to use it: Use this for MCQs and for short-note questions where time is tight.

Underline the key phrase in the case, such as treaty shopping, shell company, interest, documentation or dispute.
Map it: treaty shopping to Action 6, preferential regime without substance to Action 5, reporting to Action 13, MAP to Action 14.
Check the minimum standard list 5-6-13-14 before choosing an option.
Write the Action number and the aim in one sentence each.

Common mistakes in BEPS Action Plans and Inclusive Framework

Listing a wrong set of minimum standards, for example including Action 7 or Action 15.
Students remember that PE and the MLI are important and assume they are mandatory.
Fix: Memorise 5-6-13-14. Action 7 and Action 15 are not minimum standards, although Action 6 is delivered mainly through the MLI.
Saying that BEPS is illegal tax evasion.
The word 'avoidance' and 'evasion' get mixed up under pressure.
Fix: Say that BEPS strategies usually exploit gaps and mismatches in rules rather than break them. They are aggressive tax planning, not evasion.
Confusing the OECD BEPS project with Pillar One and Pillar Two.
Both deal with international tax reform and Action 1 covers the digital economy.
Fix: Treat BEPS 2015 as the base project. Pillar One and Pillar Two are the later work on the tax challenges of digitalisation, covered on their own page.
Mixing up Action 13 and Action 14.
Both are minimum standards linked to transfer pricing.
Fix: Action 13 is documentation and country-by-country reporting. Action 14 is making dispute resolution (such as MAP) more effective.
Treating the BEPS recommendations as binding law in India.
Students forget that only the minimum standards are commitments and that domestic law must be amended to implement them.
Fix: Write that the Actions are implemented through domestic legislation and treaty changes, not directly.
Giving the Inclusive Framework as only OECD members.
The OECD name suggests membership is limited to OECD countries.
Fix: State that it is open to all interested countries and jurisdictions, including non-OECD and developing countries, on an equal footing.

Worked examples

Example 1

A group company in Country X holds a patent and licenses it to its sister concern in Country Y. The licensee pays a large royalty to a conduit shell in Country Z that has no employees, so that a treaty rate applies. Which BEPS Action clearly applies, and is it a minimum standard?

Show the solution

Identify the trick: use of a shell with no substance to obtain a treaty rate on royalties. This is treaty shopping.
Treaty benefit obtained through a conduit is treaty abuse. This is Action 6, so it clearly applies.
Check status: Action 6 is a minimum standard.
Explain the response: treaties should carry a principal purpose test or similar anti-abuse rule, so the treaty rate is denied where obtaining it was a principal purpose of the arrangement.
Note the intangible aspect: the patent and the royalty flow raise the question of who performed the functions and controlled the risks behind the intangible. Actions 8-10 (transfer pricing aligned with value creation) apply to that point. They are not minimum standards.
Action 5 would come in only if the facts said Country Z grants the shell a preferential tax regime. The facts do not say so, so do not apply it.

Answer: Action 6 (preventing treaty abuse) clearly applies and is a minimum standard, so Inclusive Framework members must implement it and are peer-reviewed. Actions 8-10 apply to the patent and value-creation aspect. Action 5 applies only if Country Z gives a preferential regime, which is not stated.

Example 2

Explain briefly what the Inclusive Framework on BEPS is and state which BEPS Actions are minimum standards. Why is Action 13 relevant to a large Indian multinational group?

Show the solution

Define the Inclusive Framework: a body that lets any interested country or jurisdiction work with the OECD/G20 members on BEPS on an equal footing.
State the commitment: members agree to implement the four minimum standards and are reviewed by their peers.
List the minimum standards: Action 5, Action 6, Action 13 and Action 14.
Describe Action 13: three-tier documentation, being the master file, the local file and country-by-country reporting.
Apply to the Indian group: a large multinational group has to give tax authorities a global view of income, taxes and activity by jurisdiction, so authorities can assess transfer pricing risk.

Answer: The Inclusive Framework is the open platform through which countries, including India, implement and monitor BEPS outcomes. The minimum standards are Actions 5, 6, 13 and 14. Action 13 matters to an Indian multinational because it requires master file, local file and country-by-country reporting so authorities can assess transfer pricing risk.

Exam tips

Learn the table of 15 Actions by number and one-line aim. Many questions simply ask you to name and explain an Action.
Memorise 5-6-13-14 as the minimum standards and be ready to say why each matters.
In case-scenario MCQs, find the trick in the facts first and then choose the Action. Do not pick by the option that looks most familiar.
In written answers, use a short structure: meaning, Action, aim, status, India link. Examiners give marks for each part.
Do not quote section numbers or rates for India unless you are certain. A correct concept with plain wording is safer.

Practice questions from Latest Developments in International Taxation

BEPS Action Plans and Inclusive Framework: frequently asked questions

What are the 15 BEPS action plans in short?

They are: 1 digital economy, 2 hybrid mismatch arrangements, 3 CFC rules, 4 interest deductions, 5 harmful tax practices, 6 treaty abuse, 7 PE status, 8-10 transfer pricing and value creation, 11 measuring BEPS, 12 mandatory disclosure, 13 transfer pricing documentation and CbCR, 14 dispute resolution, and 15 multilateral instrument.

What are the BEPS minimum standards?

There are four: Action 5 on harmful tax practices, Action 6 on treaty abuse, Action 13 on transfer pricing documentation and country-by-country reporting, and Action 14 on dispute resolution. Countries in the Inclusive Framework have committed to implement them and are peer-reviewed.

What is the BEPS Inclusive Framework?

It is the platform where over a hundred countries and jurisdictions, OECD and non-OECD, work together on BEPS on an equal footing. Members implement the minimum standards and take part in peer reviews.

Is India a member of the Inclusive Framework?

Yes. India participated in the BEPS project as a G20 country and is a member of the Inclusive Framework. It has made changes in its law and treaty practice in line with BEPS outcomes.