How does profit shifting work?

Profit shifting is a tax strategy used by Multinational companies. In this strategy, multinational companies make profits in one country and these profits are shifted to another country by taking advantage of loopholes and mismatches in tax rules. This strategy is used as the tax rates in other countries would be lesser than the tax rates in the country where profit was made by the multinational company. You can read about the Base Erosion and Profit Shifting (BEPS) – Issues, Measures taken by India in the given link.

Further readings:

  1. Taxation in India – Direct taxes, Indirect Taxes, Features of Taxation System
  2. Organisation for Economic Co-operation and Development [OECD] – Objectives, Member Countries, Responsibilities

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