Income Distribution in Multinational Firms through Transfer Pricing

The objective of this paper is to analyze the procedures used by multinational enterprises to distribute the income generated by its foreign subsidiaries, and how they allocate the taxes paid on this income through the fiscal jurisdiction in which they operate, from the institution based view. The analytic research method was applied, through the revision of the available literature in order to determine the causes and effects of income shifting, as a fiscal strategy applied by MNE. It can be concluded that MNE use organizational strategies to take advantage of the comparative advantages of the different countries in which they operate, resulting in intercompany trade. When setting the transfer prices in which companies trade goods and services, the opportunity arises so that MNE shift their extra income to jurisdiction with lower corporate tax rates, and therefore minimize its fiscal burden