Transfer Pricing and Profit Shifting: Evaluating the Effectiveness of OECD Guidelines in Curbing Tax Avoidance

Abstract

Transfer pricing and profit shifting are critical issues in international taxation, enabling multinational corporations (MNCs) to allocate income to low-tax jurisdictions, thereby minimizing their tax liabilities. In response to these practices, the Organization for Economic Co-operation and Development (OECD) has established guidelines aimed at promoting transparency and fairness in the global tax landscape. This paper evaluates the effectiveness of the OECD guidelines in curbing tax avoidance through transfer pricing and profit shifting. By examining key aspects of the guidelines, such as the arm's length principle, documentation requirements, and country-by-country reporting (CbCR), the paper assesses their impact on global tax compliance and the challenges they face in enforcement. The study also explores the implications of these guidelines for developing countries and suggests potential improvements to enhance their effectiveness in combating tax avoidance.