Transfer Pricing in Emerging Economies: Fueling or Mitigating Tax Competition

Abstract

Transfer pricing, the pricing of goods, services, and intellectual property between affiliated entities within multinational corporations (MNCs), plays a pivotal role in shaping economic activities and tax strategies, particularly in emerging economies. This paper examines the dual nature of transfer pricing in these regions: as a potential catalyst for tax competition among nations and as a mechanism for revenue generation. Through a comprehensive literature review, case studies, and analysis of the regulatory landscape, we explore how transfer pricing practices influence tax competition, the implications for economic growth, and the effectiveness of regulatory frameworks in curbing aggressive tax avoidance. The findings suggest that while transfer pricing can exacerbate tax competition, it also presents opportunities for tax authorities to optimize revenue collection. The paper concludes with policy recommendations aimed at enhancing the effectiveness of transfer pricing regulations in emerging economies, ensuring fair competition, and fostering sustainable economic development.