Base Erosion and Profit Shifting Reading Answers

May 20, 2025

Base Erosion and Profit Shifting Reading Answers is an academic reading answers topic. Base Erosion and Profit Shifting Reading Answers has a total of 13 IELTS questions in total. In the question set given, you have to state whether the statement is true, false or not given with the information given in the text. In the next question set, you have to complete each of the following statements with one of the phrases (A - J).

The IELTS Reading section is an essential part of the test that evaluates a candidate's comprehension and analysis of various passage types. You will work through several IELTS reading practice problems in this section that resemble actual test situations. These questions are designed to help you improve your ability to recognise essential concepts, extract particular facts, and make inferences. Practising these IELTS reading problems can help you get comfortable with the structure and increase your confidence for the exam, regardless of whether you are studying for the Academic or General Training module.

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Section 1

BASE EROSION AND PROFIT SHIFTING - DOES THE CORPORATE WORLD AVOID PAYING ITS FAIR SHARE OF TAX?

A recent tax study was completed in Australia and close reading of the assembled data revealed that nearly a third of private companies with annual incomes of AUD200 million or more pay no tax on profits to the Australian government. Similarly, statistics in New Zealand Show that a list of 20 of the top multi-national earners in New Zealand reported an average profit of just 1.3 per cent for New Zealand-generated revenue yet their parent companies reported, on average, profit margins of over 20 per cent for their global operations. In South Africa, a report to the U.N. from the charity OXFAM stated that "only 1.6 out of 2 million registered companies in South Africa... pay their tax revenue." It is noted that in the U.S., corporate tax rates are amongst the highest in the world, at a stated rate of 35 per cent, yet the figures show that corporate America pays, on average, less than half that rate, costing the U.S. government USD90 billion annually in lost revenue. Worldwide, lost income from unpaid taxes is estimated to come in at 10 per cent of global corporate income. How does this loss of federal income and, it would seem, tax evasion happen? Are there illegal practices being pursued by what would otherwise seem to be upstanding, and in many cases outstanding, companies? The answer lies in a murky netherworld of corporate tax laws, cross-nation trading practices, a growing world of Intellectual Property (IP) services and an army of tax lawyers and tax accountants trolling through the myriad of national tax laws intent on securing the best, and legal, tax structures for their clients. What has emerged now is a somewhat acceptable understanding of the possibilities of the advantages being taken of various national tax laws to the benefit of the corporate client, but the question then arises as to not whether the tax regime is legal, but whether it is ethical, in a business and good-corporate-citizen sense.

The underlying situation that created this complicated nightmare is that the collection of tax no longer keeps pace with the new globalised trading economy, a system which is based on tax structures nearly a century old. The basic principle that most corporate entities employ is the concept of transfer pricing, which, in simple terms, is moving profits from a high-tax country to a lower tax jurisdiction and expenses to a high-tax locality, all within the organizational structure of the company, using its many branch and subsidiary operations. An example of this is a well-known multi-national technology company that had set up what are known as 'shell companies' - that is, companies designed to absorb tax and legal requirements but that deliver no real tangible services but are still a legal entity as a subsidiary or branch of the parent company. The term given to this practice by governments around the world. who are working together in an attempt to minimize tax losses, is Base Erosion and Profit Shifting or BEPS, in that moving costs and revenues from country to country within a company's structure erodes the tax base of the host countries. Efforts by the G20 group of top industrialized nations to make the tax information of multi-national companies public have so far failed, and since 2012, the G20 has been working on a World Financial Registry, with only small steps being recorded as to progress made. In 2015, a G20 meeting released an action plan for further progress, but there was general consensus that the G20 countries had "failed to take bold action needed to end tax avoidance in developing countries", as reported by the anti-poverty charity Action Aid.

However, the entire situation lies within such a grey area that there are some who claim there are no Illegalities Involved, just a careful maneuvering through existing tax laws within countries. There is an argument advanced that tax avoidance is a symptom of the high, and complex, corporate tax rates and laws imposed by the industrialised countries, and that if a company did not seek to exploit the rules, they would be at a competitive disadvantage. Others also point out that large multinationals working in developing nations bring employment, wages and security to the economy, and some even mention that their company has been actively sought to bring its operations to a country by having lower tax rates offered by the government. The complexity of the situation is such that there are no two similar situations and the complications involved in drafting legislation to cover all scenarios is proving to be a difficult and time-consuming task. Various attempts at solutions have been presented, but there is an apparent unwillingness to reach a consensus on the best approach. One proposal put forward, and even adopted by some countries, is what is known as unitary taxation, which aims to tax activities where they actually generate the income, not where the accounts have been shifted through the internal workings of the company. The company would then be expected to produce one overall set of accounts, and the global profits, and resulting tax liabilities, would then be allocated. However, unitary taxation has its detractors as well, owing to the difficulty in agreeing on how to apportion incomes and taxes levied on service sector companies and those dealing with intangible assets. In particular, developing countries are working with OECD countries to ensure they are receiving a bigger portion of tax revenue. An example of this is one large multi-national brewer that was selling its product in Africa and India with local labelling, but the trademarks for the company's products were held in low-tax European countries. It was calculated that the brewer had avoided paying USD30 million in taxes in Africa and India, but public action has now spurred results, just as another multi-national coffee chain raised its tax payments in developing countries owing to a consumer backlash.

The end result is that governments do not benefit from profit shifting; the companies and their shareholders do. It is recognized that action is needed to look at the missing 10 per cent of global corporate revenue that appears not to be taxed. The billions of dollars not going into government coffers represents lost income that should more properly be spent on a country's infrastructure and, ultimately, its citizens.

Questions 1–6

Do the following statements agree with the information given in Reading Passage I?

In boxes 1–6, write

TRUE if the statement agrees with the information

FALSE if the statement contradicts the information

NOT GIVEN if there is no information

1. Multinational companies operating in New Zealand have a lower average profit than in Australia.

Answer: NOT GIVEN

Explanation: No information about multinational companies operating in New Zealand that have a lower average profit compared to Australia is given in the text above.

2. Approximately 90 per cent of global corporate income is taxed appropriately.

Answer: TRUE

Supporting statement: Worldwide, lost income from unpaid taxes is estimated to come in at 10 per cent of global corporate income.

Keywords: Worldwide, lost income

Keyword Location: Para 1, Line 11

Explanation: The text states that an estimated 10% of global corporate income is lost due to unpaid taxes.

3. Research now indicates that all situations of lost tax income result from illegal activities.

Answer: FALSE

Supporting statement: However, the entire situation lies within such a grey area that there are some who claim there are no Illegalities Involved, just a careful maneuvering through existing tax laws within countries.

Keywords: Illegalities, maneuvering

Keyword Location: Para 3, Lines 1-2

Explanation: According to the text, illegal activities are not the only cause of lost income tax, but many other factors are involved in this process, one of them being the manipulation of tax by using the existing tax laws within a country

4. The global practice of avoiding paying tax has been occurring for nearly one hundred years.

Answer: NOT GIVEN

Explanation: The text contains no information about the global practice of avoiding paying tax, which has been happening for nearly one hundred years.

5. Some people argue that the avoidance of paying corporate tax is within the laws because the tax laws are so complicated and the tax rates so high.

Answer: TRUE

Supporting statement: There is an argument advanced that tax avoidance is a symptom of the high, and complex, corporate tax rates and laws imposed by the industrialised countries,

Keywords: tax avoidance, laws

Keyword Location: Para 3, Lines 3-4

Explanation: The text clearly states that tax evasion is a sign of the complicated and high corporate tax rates and laws that industrialised nations impose, and that a business would be at a competitive disadvantage if it did not try to take advantage of the regulations.

6. There is universal agreement that unitary taxation will prove to be the best solution.

Answer: FALSE

Supporting statement: However, unitary taxation has its detractors as well, owing to the difficulty in agreeing

Keywords: unitary taxation, detractors

Keyword Location: Para 3, Lines 16-17

Explanation: According to the text, the method of unitary taxation is not the best solution to the problem of tax evasion, as it has its disadvantages.

Questions 7–13

Complete each of the following statements with one of the phrases A-J.

7. In Australia, nearly 33% of large companies generate profits with …..

Answer: C

Supporting statement: nearly a third of private companies with annual incomes of AUD200 million or more pay no tax on profits to the Australian government.

Keywords: AUD200, Australian

Keyword Location: Para 1, Line 2

Explanation: Approximately thirty percent of private companies with yearly incomes of AUD200 million or more do not pay any tax on their profits to the Australian government, according to a new tax study conducted in Australia.

8. Lawyers and accountants try to lower tax liabilities by researching….

Answer: F

Supporting statement: lawyers and tax accountants trolling through the myriad of national tax laws intent on securing the best, and legal, tax structures for their clients.

Keywords: lawyers, tax

Keyword Location: Para 1, Lines 16-17

Explanation: According to the text, to obtain the most ideal and lawful tax solutions for clients, tax lawyers and accountants examine through the numerous national tax regulations.

9. Swapping profits and expenses between countries is known as…..

Answer: H

Supporting statement: The basic principle that most corporate entities employ is the concept of transfer pricing,

Keywords: principle, transfer pricing

Keyword Location: Para 2, Lines 3-4

Explanation: According to the text, corporate entities use transfer pricing, which is simply moving profits from a high-tax country to a lower tax jurisdiction and expenses to a high-tax locality under the company's organizational structure using its numerous branch and subsidiary operations.

10. In 2015, there was criticism of the G20 for not making enough progress, even though they made public an…….

Answer: D

Supporting statement: In 2015, a G20 meeting released an action plan for further progress, but there was general consensus

Keywords: G20, consensus

Keyword Location: Para 2, Lines 16-17

Explanation: According to the text, the G20 received criticism in 2015 due to no further progress being made even after going public with the action plan.

11. One argument for the avoidance of paying company taxes is because of the……

Answer: G

Supporting statement: There is an argument advanced that tax avoidance is a symptom of the high, and complex, corporate tax rates and laws imposed by the industrialised countries,

Keywords: avoidance, industrialised

Keyword Location: Para 3, Lines 3-4

Explanation: According to the text, corporate entities avoid tax due to the high and complex corporate tax rates and laws imposed by industrialised countries.

12. One solution being discussed is what is known as ……

Answer: B

Supporting statement: One proposal put forward, and even adopted by some countries, is what is known as unitary taxation,

Keywords: proposal, unitary taxation

Keyword Location: Para 3, Lines 12-13

Explanation: According to the text, the solution to tax evasion is using the unitary method, which some companies have already adopted.

13. To help distribute taxes more fairly, OECD countries are working with……

Answer: E

Supporting statement: In particular, developing countries are working with OECD countries to ensure they are receiving a bigger portion of tax revenue.

Keywords: countries, OECD

Keyword Location: Para 3, Line 19

Explanation: According to the text, OECD countries receive a bigger portion of tax revenue from the developing countries to ensure fair distribution of taxes.

A. shell companies

B. unitary taxation

C. no tax

D. action plan

E. developing countries

F. national tax laws

G. high corporate tax rates

H. transfer pricing

I. multi-national companies

J. avoidance of tax

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