How Transfer Pricing Influences International Tax Competition: Insights from Emerging Economies

Abstract

Transfer pricing, a mechanism that allows multinational corporations (MNCs) to allocate profits and costs across different jurisdictions, plays a critical role in international tax competition. This paper explores the intricate relationship between transfer pricing practices and international tax competition, with a specific focus on emerging economies. These economies are particularly susceptible to the effects of transfer pricing due to their increasing integration into global markets, reliance on foreign direct investment (FDI), and relatively weaker regulatory frameworks. The paper examines how MNCs use transfer pricing to optimize tax liabilities, the policy responses of emerging economies, and the broader implications for economic development, tax base erosion, and equity. Additionally, the paper provides insights into how international initiatives, such as the Base Erosion and Profit Shifting (BEPS) project, are reshaping the landscape of transfer pricing in these regions.