Profit Shifting in Multinational Corporations: A Critical Review of OECD Transfer Pricing Rules

Abstract

This paper examines the phenomenon of profit shifting among multinational corporations (MNCs) and critically reviews the OECD Transfer Pricing Rules designed to mitigate such practices. Profit shifting allows MNCs to allocate profits to low-tax jurisdictions, leading to significant tax revenue losses for higher-tax countries. The OECD’s guidelines aim to establish fair pricing for intercompany transactions, promote transparency, and ensure that profits are taxed where economic activities occur. However, challenges in implementation, varying interpretations among jurisdictions, and the dynamic nature of global business necessitate ongoing scrutiny. This study underscores the need for enhanced international cooperation and robust regulatory frameworks to combat aggressive tax avoidance strategies and promote fair taxation.