The effects of transfer pricing regulations on multinational income shifting

This study examines the effectiveness of transfer pricing regulations on income shifting. The results indicate that domestic (foreign) transfer pricing regulations reduce the tax and non-tax motivations of affiliates to shift income out of (into) their home country. The study further identifies that regulations restrict the income-shifting behavior of small multinational affiliates to a greater extent than that of larger multinational affiliates. The results confirm that aggressive income-shifting activities are generally conducted by large multinational corporations, which are capable of exploiting sophisticated tax planning using legitimate tax loopholes.