Profit Shifting

Profit shifting is a strategy used by companies to reduce their overall tax bill by moving the reported profits from higher-tax countries to lower-tax jurisdictions. They do this by adjusting prices for internal transactions, such as sales of goods or services between their subsidiaries, or by shifting intangible assets like patents. This allows companies to pay less in taxes where they actually generate profits, often leading to less tax revenue for governments. While legal if done within the law, it raises concerns about fairness and contributes to tax base erosion in higher-tax countries.