The impact of anti-avoidance measures on profit shifting strategies of multinational companies : a comparison of developed and developing countries

Intercompany transactions, financing, and licensing generally offer the opportunity to shift income from one jurisdiction to the other, which may be a valuable instrument for multinationals to reduce the overall tax burden. At the same time, profit shifting imposes risk to governments as it may reduce tax revenues. More and more governments are, therefore, introducing and extending anti-avoidance regulations in order to combat profit shifting through intercompany transactions. Against this background, this thesis first outlines and analyses different anti-avoidance measures implemented worldwide. In a second step, specific anti-avoidance measures, namely transfer pricing regulations and thin capitalization rules, are described and compared for 44 and 53 countries respectively. Finally, the thesis includes two empirical analyses which examine the impact of transfer pricing rules and thin capitalization rules on profit shifting behaviour in developed and developing countries. The results show that stricter rules lead to reduced outward profit shifting and, thus, provide interesting insights to policy makers.