Transfer Pricing and Base Erosion: Are Current OECD Guidelines Sufficient in Curbing Profit Shifting?

• Author(s): Cordilia Eke
• Paper ID: 1710492
• Page: 2404-2417
• Published Date: 08-09-2025
• Published In: Iconic Research And Engineering Journals
• Publisher: IRE Journals
• e-ISSN: 2456-8880
• Volume/Issue: Volume 8 Issue 11 May-2025

Abstract

Base erosion and profit shifting (BEPS) have become defining challenges in global taxation, threatening fiscal sustainability, fairness, and the integrity of international economic governance. At the heart of this challenge lies transfer pricing, a mechanism through which multinational enterprises allocate profits across jurisdictions, often exploiting gaps and mismatches in tax rules to minimize their global tax liabilities. The Organization for Economic Co-operation and Development (OECD) has developed transfer pricing guidelines, anchored in the arm’s length principle, to curb profit shifting and align reported profits with real economic activity. However, questions persist as to whether these guidelines are sufficient in a global economy increasingly characterized by intangibles, digitalized business models, and asymmetric capacities between developed and developing countries.This review critically examines the adequacy of OECD transfer pricing guidelines in addressing profit shifting. Drawing on policy reports, case studies, and academic literature, it explores the conceptual foundations of transfer pricing, evaluates the guidelines’ effectiveness in reducing fiscal, governance, and reputational risks, and assesses their limitations in implementation and enforcement. Particular attention is given to challenges arising from the digital economy, the valuation of intangibles, and the uneven enforcement capacities of tax administrations. The paper further discusses global case studies from both advanced and emerging economies to illustrate successes, failures, and persistent loopholes.The review concludes that while OECD guidelines have advanced global tax governance by providing a common framework and influencing legislative reforms, they remain insufficient in curbing profit shifting on their own. To achieve fairer and more sustainable taxation, a shift toward complementary measures is necessary, including the adoption of global minimum taxation, greater transparency through country-by-country reporting, and capacity-building initiatives for developing countries. Ultimately, the adequacy of OECD guidelines must be understood within the broader evolution of international tax cooperation and the quest for equitable resource mobilization in an interconnected global economy.

Keywords

Transfer pricing; Base erosion; Profit shifting; OECD guidelines; Arm’s length principle; BEPS; International taxation; Digital economy

Citations

IRE Journals:
Cordilia Eke "Transfer Pricing and Base Erosion: Are Current OECD Guidelines Sufficient in Curbing Profit Shifting?" Iconic Research And Engineering Journals Volume 8 Issue 11 2025 Page 2404-2417

IEEE:
Cordilia Eke "Transfer Pricing and Base Erosion: Are Current OECD Guidelines Sufficient in Curbing Profit Shifting?" Iconic Research And Engineering Journals, 8(11)