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"Tax-motivated transfer pricing has attracted world attention owing to the existence of low-tax
jurisdictions and the volume of the activities of multinational corporations (MNCs). MNCs
have many instruments for shifting profits through transfer pricing, and tax havens provide ample
opportunity for this. Tax havens pose the threat of capital flight and income shifting from
high-tax countries. At present, there are two ways of tackling this problem: by applying the
arm's length principle to determine the tax payable by MNCs in a particular jurisdiction or by
using a formula to allocate tax payable by MNCs between countries. Based on various studies
conducted so far, this paper summarizes the advantages and disadvantages of these methods in
solving the problem of profit-shifting by MNCs. The predicament is truly global in nature, and
no single country or group of countries can hope to resolve it. It is high time a global institution
was set up to calculate MNCs' worldwide income and to provide tax authorities with timely
information." [author's abstract]