Nowadays, our world is more integrated, interdependent and interrelated more than ever before. Development of science and information technology has played a significant role to bring about this globalization process. MNEs have played their own part in increasing integration of international trade and economy. They have been a source of job opportunities, capital inflows, hard currency, tax revenue, transfer of technology, knowledge and skills for many developing countries. On the other hand, developing countries in order to make benefits out of MNEs, attract and retain foreign capital to/in their own jurisdiction they have taken various tax reform and trade liberalization measures. Benjamin Franklin said that “nothing is certain except death and tax” to emphasize the inevitability and unavoidably of payment of tax. However, this famous proverb does not seem to work for MNEs. Harmful tax competition, lack of strong global tax governance, coupled with lack of effective anti-BEPS legislation and lack of capacity of tax authorities in developing countries have placed MNEs in a better position to avoid and/or evaded billions of dollars from the developing world each year. Following the downfall of the socialist regime in 1991, Ethiopia, has taken numerous economic structural reform measures such as; decentralizing the economy, opening up many investment areas to the private sector, lifting the restriction on the private sector, inclusion of incentive packages in investment laws and other trade liberalization measures. As a result, the number of FDI inflow is increasing from time to time. Thus, this has made the country to be one of the top 10 investment destinations in Africa by recording a continuous increase of 12% per annum. Therefore, the country in order to benefit from FDI and MNEs, particularly, tax benefits, it needs to have effective legal and institutional framework that can enable it to properly exercise its taxing rights over MNEs and save billions of dollars from being avoided and/or evaded. Because, it is clear that the country is facing those challenges of taxing MNEs that other developing countries are facing. Hence, this research has investigated both the legal and institutional frameworks of the country, to know as to whether the country is in a good position to tax MNEs and won the fight against BEPS (transfer pricing, hybrid mismatch arrangements, treaty shopping, SPEs and thin capitalization). The findings of this research shows that, except the transfer pricing regime, the country`s tax system is suffering from absence of anti-hybrid mismatch rule, general anti-base erosion rule and detailed rule of thin capitalization. Similarly, most of avoidance of double taxation treaties does not have limitation on benefit and purpose test clause, which are the common methods of avoidance of treaty shopping. Worse than the legal framework, the institutional framework is fraught with lack of; awareness of BEPS, capacity to tax MNEs, capacity to follow up and monitor activities of MNEs and implementation of BEPS legislation, tax cooperation and exchange of information, resource and ICT infrastructure. Therefore, for the country it is hardly possible to combat BEPS and subject MNEs in to its proper power of taxation by the existing legal and institutional frameworks. Hence, this researcher has recommended for; the revision of the transfer pricing directive in the light of the new ITP, the enactment of anti-hybrid mismatch and general anti-base erosion rules, detailed rules of thin capitalization, and inclusion of limitation on benefit and purpose test clauses in avoidance of double taxation treaties so as to avoid treaty shopping. Concerning institutional framework reform measures, the researcher recommend that, raising the awareness of responsible experts and officials about BEPS, equip the tax authority and MFEC with well-trained experts on the area of BEP, enhancing the capacity of the ERCA and MEFC to follow up and monitor the activities of MNEs by allocating the resource needed, ERCA should also sign tax cooperation and exchange of information agreements with other tax authorities concerning BEPS, and the authority must have documentation data base in order to mitigate the challenge related to lack of comparable data. xCHAPTER ONE INTRODUCTION 1.1. Background of the Study Globalization has made our world interdependent, interconnected and integrat