Profit Shifting and Transfer Pricing: Evaluating the OECD Guidelines in the Fight Against Tax Avoidance

Abstract

Transfer pricing, which is setting the price of goods, services, and intellectual property between affiliated companies in diverse multinational entities (MNCs), is a key factor in the economic activities and tax techniques especially in developing economies. In this regard, the study sheds light on dualism of transfer pricing in the aforementioned regions, which constitutes a possible means for tax competition between countries and revenue generation. We also examine the regulatory landscape by means of a comprehensive literature review, a few case studies, and analysis of the landscape, to look keenly at how transfer pricing practices influence tax competition, the implications for economic growth, and the effectiveness of regulatory frameworks in curbing aggressive tax avoidance. Based on the results, there is an indication that transfer pricing may be a source of tax competition yet may also be a mean to optimize the amount the tax department collects. The paper concludes with policy suggestions which are bound to improve the effectiveness of transfer pricing regulations in the developing countries as well as to guarantee fair competition and sustainable economic development.