Abstract
Transfer pricing is the price between two related parties. Multinational companies have a tendency to shift their profits from the country where they operate to their home countries. The objective of this study is to examine the effects of transfer pricing on profit shifting by multinational enterprises in Rwanda. The study tests transfer pricing’s factors such as finance costs, intra-group transactions/services costs, and royalty expenses on profit shifting by multinational companies in Rwanda. The study is guided by the theory of optimal transfer prices, agency theory, and accounting theory. The study adopts a quantitative research design with a target population of 72 Multinational Enterprises registered in the large taxpayer’s offices. It collected data from financial statements and uses inferential statistics to ascertain the effects of transfer pricing on profit shifting. The study finds that multinational companies shift profits through royalties, finance costs, and intra-group services. The study concludes that a unit change in the independent variables influences total costs as well as taxable incomes. The study recommends that the Rwanda Revenue Authority (RRA) should come up with a clear law or legislation on transfer pricing.
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Twesige, D., Gasheja, F., Barayendema, J., Uwamahoro, A. (2020). Effect of Transfer Pricing on Profit Shifting by Multinational Companies in Developing Countries: A Case of Rwanda. In: Das, G., Johnson, R. (eds) Rwandan Economy at the Crossroads of Development. Frontiers in African Business Research. Springer, Singapore. https://doi.org/10.1007/978-981-15-5046-1_9
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