Transfer Pricing and OECD Guidelines: How Effective Are They in Curbing Global Tax Avoidance?

Abstract

Transfer pricing refers to the pricing of goods, services, and intangibles between related parties within multinational enterprises (MNEs). This practice has significant implications for global tax avoidance, enabling MNEs to shift profits to low-tax jurisdictions. The OECD (Organization for Economic Co-operation and Development) has developed guidelines to standardize transfer pricing practices and mitigate tax avoidance. This paper critically evaluates the effectiveness of OECD guidelines in curbing global tax avoidance through transfer pricing. It explores the historical context of transfer pricing, examines OECD guidelines, analyzes their implementation and compliance among member countries, and discusses their limitations. The findings indicate that while OECD guidelines provide a framework for improving transparency and fairness, significant challenges remain in their enforcement and the adaptation of jurisdictions, undermining their potential effectiveness.