The behavior of multinational companies to achieve tax avoidance purposes by manipulating product pricing is often referred to as Transfer Pricing. This is a legal but potentially controversial tax planning strategy that involves multinational companies artificially adjusting the prices of goods, services, or intangible assets among their affiliated companies to transfer profits to low-tax countries or regions, thereby reducing the overall tax burden. The following are some common methods that multinational companies may use： ### 1. **Sold at high prices to subsidiaries in high-tax countries** -Multinational companies can increase the costs of these subsidiaries by selling their products at higher prices to subsidiaries located in high-tax countries, thereby reducing their taxable profits. Profits are transferred to the parent company or other affiliated companies in low-tax countries. ### 2. **Sold at low prices to subsidiaries in low-tax countries** -Companies may sell their products to subsidiaries located in low-tax countries at lower prices, thereby concentrating profits in these subsidiaries and reducing taxable profits in high-tax countries. ### 3. **Transfer pricing of intangible assets** -Multinational companies may transfer profits to low-tax countries by manipulating the license fees or transfer prices of intellectual property rights (such as patents, trademarks, and copyrights). For example, the parent company can license intellectual property rights to subsidiaries in low-tax countries at a low price, and then the subsidiaries charge fees to other affiliated companies at a high price. ### 4. **Transfer pricing of service fees** -Companies may transfer profits to low-tax countries by adjusting charges for management services, technical support, or other services. For example, the parent company can charge higher service fees to subsidiaries in high-tax countries, thereby reducing the profits of the subsidiaries. ### 5. **Internal loans and interest expenses** -Multinational companies may transfer profits to low-tax countries through loan arrangements between affiliated companies. For example, the parent company can provide loans to subsidiaries in high-tax countries and charge higher interest fees, thereby reducing the profits of the subsidiaries. ### 6. **Cost sharing agreement** -Companies may allocate more R&D expenses or other costs to subsidiaries in high-tax countries through cost-sharing agreements, thereby reducing the profits of these subsidiaries. ### 7. **Take advantage of tax incentives** -Multinational companies may set up subsidiaries in specific countries, take advantage of local tax incentives (such as tax exemption periods, low tax rates, etc.), and concentrate profits in these subsidiaries through transfer pricing. ###Regulatory and anti-tax avoidance measures Although transfer pricing is a common tax planning method, many countries and regions have adopted strict regulatory measures to prevent abuse. For example： - * *OECD Transfer Pricing Guidelines**: The Organization for Economic Cooperation and Development (OECD) has formulated the “Transfer Pricing Guidelines”, which require multinational companies to follow the "Arm's Length Principle", that is, the transaction prices between affiliated companies should be consistent with the transaction prices between independent third parties. -**Country report (CbCr)**: Many countries require multinational companies to submit country reports to disclose their income, profits and tax payments in various countries to enhance transparency. -**Anti-Avoidance Rules**: Many countries have formulated anti-avoidance rules, such as controlled foreign company (CFC) rules, capital weakening rules, etc., to prevent companies from avoiding taxes through transfer pricing. ### Summary Although the behavior of multinational companies to avoid tax through transfer pricing is legal, it is subject to more and more regulation and scrutiny on a global scale. Governments and international organizations are strengthening cooperation to combat aggressive tax planning practices to ensure that companies pay taxes fairly.