Article
Transfer Pricing Regulations and Cross-Border Tax Risk Management in Multinational Enterprises
Transfer pricing, the pricing of transactions between related entities of a multinational enterprise (MNE) operating across different tax jurisdictions, sits at the center of contemporary international corporate tax policy, since the allocation of profit among a group's affiliates directly determines how much tax each jurisdiction ultimately collects. This paper reviews the regulatory architecture and empirical evidence base surrounding transfer pricing, tracing the development of the OECD's arm's-length principle and Base Erosion and Profit Shifting (BEPS) framework alongside the substantial empirical literature quantifying the scale of tax-motivated profit shifting by multinational enterprises. The review synthesizes foundational profit-shifting studies using U.S. and cross-country data, more recent large-sample estimates of global missing profits, and the applied literature on cross-border tax risk management, including documentation requirements, advance pricing agreements, and dispute resolution mechanisms. Particular attention is given to the transition from the OECD's original arm's-length, transaction-based framework toward the Pillar One and Pillar Two reforms that partially depart from that framework in response to documented profit-shifting magnitudes. Distinct comparative tables trace the regulatory timeline against its stated objectives, summarize empirical profit-shifting magnitude estimates across studies, and map specific tax-risk categories onto corresponding risk-management instruments available to multinational enterprises. The paper concludes that transfer pricing regulation has evolved reactively, in response to empirically documented profit-shifting magnitudes that consistently exceeded what the arm's-length framework was designed to prevent, and identifies the implementation and enforcement consistency of the Pillar Two global minimum tax as the central future research prospect.