Transfer Pricing and Income Shifting: Concepts, Pitfalls, and a Vision of the Future

SYNOPSIS Transfer pricing is a fundamental tool of multinational tax planning, but the outcomes of transfer pricing affect more than just tax professionals. The purpose of this perspectives article is to provide a layperson’s understanding of transfer pricing for those new to transfer pricing, including both practitioners and academics. Through an example we illustrate the fundamental uncertainty present in transfer pricing. We then provide an overview of transfer pricing methods and, drawing from the academic literature, provide an example that practitioners can follow to benchmark their firms’ transfer pricing efforts. Finally, we speculate on the future of transfer pricing. JEL Classifications: F23; H25; H26; H71.