Companies employ several strategies to minimize or avoid paying taxes on their profits. Here are some of the most common methods:
One of the primary strategies used by multinational corporations is shifting profits to low-tax jurisdictions or tax havens. This is often done through:
Transfer Pricing: Companies manipulate the prices of goods and services traded between their subsidiaries to shift profits to low-tax countries. For example, a subsidiary in a high-tax country might pay inflated prices for goods or services from a subsidiary in a low-tax country, reducing taxable profits in the high-tax jurisdiction[1][2].
Intellectual Property Location: Companies strategically locate management of intellectual property (IP) in low-tax countries. They then charge high royalties to subsidiaries in high-tax countries for using this IP, effectively shifting profits[3].