Understanding the Role of Transfer Pricing in Multinational Corporate Tax Avoidance: Challenges and Policy Implications

Abstract

Abstract

The globalisation of business has intensified the use of transfer pricing by multinational corporations (MNCs) as a tool for profit allocation, often leading to tax avoidance. This study examines the role of transfer pricing in multinational corporate tax avoidance, highlighting challenges and policy implications. The research aims to assess key transfer pricing strategies, evaluate regulatory frameworks from 2020 to 2024, and analyse their impact on corporate tax compliance. A mixed-method approach was applied, combining qualitative analysis of policy documents and quantitative statistical modelling. Findings reveal a strong correlation (0.9976) between reported and actual tax payments post-regulatory adjustments, confirming that transfer pricing remains a critical mechanism for tax minimisation. Regression analysis (R² = 0.955) demonstrates that regulatory effectiveness and compliance costs significantly influence actual tax payments. The study also identifies industry-specific transfer pricing margins, with the technology sector (14.0%) and pharmaceuticals (11.5%) showing the highest profit-shifting tendencies. Despite stricter regulations, compliance costs per MNC rose from $2.0M in 2020 to $3.0M in 2024, reinforcing the burden of enforcement. The study concludes that enhanced global tax coordination, stricter documentation requirements, and digital reporting mandates are vital in curbing tax avoidance. It recommends increased international collaboration, real-time tax monitoring, and sector-specific tax policies to mitigate tax base erosion while maintaining a fair corporate tax environment.

How to cite this article:
Celestin M, Mishra S, Mishra A K, Understanding the Role of Transfer Pricing in Multinational Corporate Tax Avoidance: Challenges and Policy Implications. J Adv Res Oper Markt Mgmt 2026; 9(1): 33-45.

DOI: https://doi.org/10.24321/2582.5399.202604