Assessing OECD Guidelines: A Review of Transfer Pricing’s Role in Mitigating Profit Shifting

Abstract

This paper investigates the significance of the OECD guidelines on transfer pricing in the context of mitigating profit shifting by multinational enterprises (MNEs). Profit shifting has become a critical issue as MNEs exploit disparities in national tax systems, resulting in substantial revenue losses for governments. The OECD's Base Erosion and Profit Shifting (BEPS) project aimed to address these challenges by providing recommendations to align tax rules with economic activities. This review highlights the effectiveness of transfer pricing regulations as tools for combating profit shifting, examines the challenges in their implementation, and discusses the evolving landscape of international tax governance. Ultimately, the paper concludes that while the OECD guidelines represent a significant step towards mitigating profit shifting, their effectiveness is contingent upon robust enforcement, continuous adaptation to changing economic realities, and international cooperation.