The behavior of multinational companies to avoid taxes by manipulating product pricing usually involves taking advantage of differences and loopholes in international tax rules to transfer profits from high-tax countries to low-tax or duty-free areas. The following are a few common methods and the logic behind them： --- ### **1. Transfer Pricing (Transfer Pricing)** **Core logic**: By adjusting the transaction prices between affiliated companies, profits are transferred to low-tax areas. **Specific method**： -**Buy high and sell low**: Subsidiaries in high-tax countries import raw materials or services from low-tax affiliated companies at high prices, or export products to them at low prices, thereby depressing profits in high-tax areas. -**Intellectual property license fees**: Subsidiaries in high-tax areas pay high patent fees, trademark royalties or management fees to the parent company in low-tax areas to reduce taxable profits. -**Service fee apportionment**: A high proportion of the costs (such as R&D and administrative expenses) of the group's headquarters (located in low-tax areas) are apportioned to subsidiaries in high-tax areas to increase their cost expenditures. **Case **: Apple once collected intellectual property royalties in the European market through its Irish subsidiary (the tax rate is less than 1%) and transferred profits to Ireland to avoid billions of dollars in taxes. --- ### **2. Establishment of intermediate holding company (Conduit Companies)** **Core logic**: Set up shell companies as transaction intermediaries in tax havens (such as the Cayman Islands, Bermuda) or low-tax countries to artificially increase transaction links. **Specific method**： -Goods or services do not actually pass through tax havens, but funds flow through intermediate companies, inflating costs or depressing income. - Use the tax treaty network to enjoy low withholding tax or tax exemption through "conduit companies". **Case **: A multinational company transferred funds through intermediate companies in the Netherlands and Singapore, using the tax treaties of the two countries to reduce the withholding tax on cross-border dividends or interest. --- ### **3. Cost Contribution Arrangements (CCAs)** **Core logic**: When sharing R&D, marketing and other costs within the group, profits are transferred through unreasonable distribution proportions. **Specific method**： -Subsidiaries in low-tax areas bear more "notional costs” and reduce the actual tax burden of subsidiaries in high-tax areas. -For example, a pharmaceutical company mainly allocates the cost of new drug research and development to a U.S. subsidiary in a high-tax area, while the patent income belongs to the Irish subsidiary. --- ### **4. Debt Shifting (Debt Shifting)** **Core logic**: Through highly leveraged loans, interest expenditures are concentrated in subsidiaries in high-tax areas, and interest deduction rules are used to reduce the tax burden. **Specific method**： -The parent company in the low-tax area provides high-interest loans to the subsidiaries in the high-tax area, and the interest paid by the subsidiaries can be deducted before tax, thereby reducing taxable profits. -This operation is called "Thin Capitalization" (Thin Capitalization). --- ### **5. Take advantage of the ambiguity of ”intangible property" pricing** **Core logic**: The value of intangible assets (such as brands, patents, and customer data) is difficult to quantify, and companies can use this to artificially manipulate pricing. **Specific method**： -Concentrate the ownership of intangible assets in subsidiaries in tax havens, and other subsidiaries pay high royalties. -Technology companies such as Google and Facebook often transfer profits through the “double-layer Irish sandwich Dutch sandwich” structure in Ireland and the Netherlands. --- ###**International countermeasures and Disputes** 1. **BEPS Action Plan**: The “Base Erosion and Profit Transfer” project promoted by the OECD requires multinational companies to disclose pricing rules for related-party transactions (such as following the “Independent Transaction Principle”). 2. **The world's lowest tax**: The 15% global minimum corporate tax agreed in 2021 restricts companies from transferring profits to “zero-tax" regions. 3. **Country report (CbCr)**: Force companies to disclose global income, profits and tax payment to tax authorities to increase transparency. --- ###**Summary** The essence of tax avoidance by multinational companies is to use differences in tax rates and information asymmetry between countries to transfer profits through complex transaction structures. Despite stricter international regulation, technical methods (such as digital service tax disputes and tax avoidance of cryptocurrency assets) are still evolving. In the future, the game between the fairness of tax rules and the compliance of multinational companies will continue to exist.