BEPS (Base Erosion and Profit Shifting) is the OECD's framework to prevent tax avoidance through international structures. Here is what it means for your company and how to stay compliant.
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Entrepreneurs with international structures increasingly hear about BEPS, Pillar Two, and substance requirements — but most receive no clear explanation of what these rules actually require of them. Ignoring BEPS creates real legal risk; understanding it enables you to plan around it.
FIXE GROUP designs all international structures with BEPS compliance built in — substance, transfer pricing documentation, and treaty access carefully reviewed before incorporation.
BEPS (Base Erosion and Profit Shifting) is the OECD's global project to prevent multinational corporations and individuals from using international tax mismatches to artificially shift profits to low-tax jurisdictions. The 15 BEPS Actions — adopted in 2015 and progressively implemented by over 135 countries — have fundamentally changed international tax planning. For entrepreneurs, the most relevant actions are: Action 5 (substance requirements), Action 6 (treaty abuse prevention), Action 7 (permanent establishment), and Action 13 (transfer pricing documentation).
The BEPS project identified 15 areas where existing international tax rules allowed base erosion and profit shifting. For individual entrepreneurs and small international businesses, four actions are most directly relevant:
ACTION 5 — HARMFUL TAX PRACTICES: Countries must not offer preferential tax regimes (such as zero-tax jurisdictions or special holding company regimes) without requiring genuine economic substance. This is why the UAE, Panama, and others introduced Economic Substance Regulations — to comply with Action 5 and avoid being blacklisted by the EU and OECD.
ACTION 6 — PREVENTION OF TREATY ABUSE: The Multilateral Instrument (MLI) introduced a 'Principal Purpose Test' — if one of the main purposes of a transaction or arrangement is to obtain treaty benefits, those benefits may be denied. This means you cannot create a holding company in a treaty jurisdiction solely to access lower withholding rates if there is no genuine commercial reason for the structure.
ACTION 7 — PERMANENT ESTABLISHMENT: Broadened the definition of PE to capture commissionnaire arrangements and fragmentation strategies. Relevant for entrepreneurs who have employees or agents operating in countries on their behalf — this can inadvertently create a taxable presence.
ACTION 13 — TRANSFER PRICING DOCUMENTATION: Introduced Country-by-Country Reporting (CbCR) for multinational groups above €750M revenue, but also reinforced the arm's length principle for all intercompany transactions. For smaller international structures with related-party transactions (e.g., management fees, IP licensing between your holding and operating companies), documented arm's length pricing is required.
In 2021, the OECD agreed on a global minimum corporate tax of 15% for multinationals with revenue above €750M. Pillar Two is already being implemented by the EU (Directive 2022/2523) and many OECD members. For most FIXE clients (SMEs, individual entrepreneurs), Pillar Two does not apply directly — but it signals increasing international pressure toward minimum taxation standards, even below the €750M threshold in future rule iterations.
For any international structure: ensure genuine economic substance in your holding/operating jurisdiction; document intercompany transactions at arm's length; do not rely solely on treaty benefits without genuine commercial rationale; keep board minutes and governance records showing that decisions are made in the jurisdiction where the company is registered.
Legal basis
OECD BEPS Actions 1–15 (Final Reports 2015)
OECD Multilateral Instrument (MLI, BEPS Action 15)
EU Directive 2016/1164 (ATAD I)
EU Directive 2017/952 (ATAD II)
EU Directive 2022/2523 (Pillar Two)
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