Taxing Global Companies

Multinationals can legally reduce taxes by deciding where profits are recorded. Through 'transfer pricing', branches charge each other for goods, services and especially intangible assets such as patents and brands, which are hard to value. Booking intellectual property in low-tax jurisdictions can shift profits away from where sales and production occur. International rules require such prices to follow the 'arm's length principle', as if the branches were unrelated firms, but enforcement is difficult.

In 2013 the OECD and G20 launched the Base Erosion and Profit Shifting project, and in 2021 about 136 countries agreed to a global minimum corporate tax rate of 15 percent for large multinationals. The European Commission's 2016 ruling that Ireland had granted Apple illegal state aid, upheld by the EU's top court in 2024, showed the political stakes. Low-tax countries argue they are entitled to compete for investment, while others say tax competition shifts the burden onto workers and smaller firms.