handbook-tb

Protecting the tax base of developing countries10.4 Possible effects of the OECD project on BEPS on taxincentivesIt is impossible to predict the effect of the OECD project on BEPS ontax incentives offered by developing countries. One possibility is thatit will make doing business in developed countries more expensivebecause of increased tax burdens resulting from the reduction orelimination of base erosion and profit shifting. If so, the tax incentivesoffered by developing countries may become more attractive formultinational enterprises. This assumes, of course, that multinationalenterprises cannot easily strip profits out of developing countries. Ifthey can do so, the tax incentives offered by developing countries willbe less important. Another more likely possibility is that several of theBEPS action points may provide developing countries, as well as developedcountries, with additional tools to improve the administrationand enforcement of their tax incentives.11. ConclusionTax base protection is an essential element in establishing domesticrevenue sustainability. The identification of the features of the taxsystem that facilitate base erosion and profit shifting will allow countriesto assess the impact that such provisions have and to developthe appropriate measures to take in response. Once the diagnosis ofthe problem has been made, the next step is the implementation andadministration of those solutions that are best suited to the particularcircumstances of each country. Although there is no one answer tothe issues of base erosion and profit shifting, a careful choice amongthe possible approaches can lead to substantial improvements in therevenue-raising capacity of the tax systems of developing countries.45