Can the OECD Guidelines Stop Profit Shifting? An Analysis of Transfer Pricing Effectiveness

Abstract

Profit shifting by multinational corporations (MNCs) has become a critical issue in international taxation, resulting in significant revenue losses for governments worldwide. This paper analyzes the effectiveness of the OECD Guidelines on transfer pricing in curbing profit shifting practices. It examines the theoretical foundations of transfer pricing, the mechanisms through which profit shifting occurs, and the OECD’s efforts to address these challenges. The findings suggest that while the OECD Guidelines represent a significant step towards standardizing transfer pricing practices, they face limitations in enforcement and compliance. The paper concludes with recommendations for enhancing the effectiveness of these guidelines in combating profit shifting.