Elimination of international double taxation in connection with the adjustment of transfer pricing

In order to minimize tax burden, multinational corporations often transfer profits between each other. It is one of the ways of international tax avoidance, which reduces the tax burden of multinational corporations at the expense of relevant countries´ tax revenues. Tax authorities would adjust transfer pricing of associated enterprises to safeguard the national tax revenues. This causes the international double taxation which in turn increases the tax burden of multinational corporations. This issue must be resolved properly; otherwise it would surely have a negative impact on the international economic exchanges. The paper defines relevant concepts, such as associated enterprises and transfer pricing, analyses the arm´s length principle, which is the core principle of transfer pricing system, interprets the cause of international double taxation connected with the adjustment of transfer pricing by case. Then, we propose two problem-solving modes, that is, negotiation mechanism and arbitration mechanism, and make the evaluation.