Abstract

The objective of this study is to examine the determinants of profit shifting by multinational enterprises in Rwanda. The study specifically sought to determine the extent to which finance costs, intra group transactions / services costs and royalty expense influence profit shifting by multinational companies in Rwanda. Profit shifting was measured on the basis of total cost as well as taxable income reported by multinational enterprises (MNEs). The study was guided by theory of optimal transfer prices, agency theory, and accounting theory. The study adopted a quantitative research design. The target population was 72 MNEs registered in large taxpayer office. Data were collected from the audited financial statements using documentation. Inferential statistics were used to ascertain the determinants of profit shifting. The study found out that there is a positive and significant relationship between intra group transactions / services.  The study also shows that there was a negative and significant relationship between finance cost and taxable income. The study also found out that there is a negative and significant relationship between intra group transactions / services and taxable income. The study concludes that a unit change in independent variables influence the total costs as well as taxable income.  The study recommends that RRA should come up with a clear law or legislation on transfer pricing.

Key words: Profit shifting, transfer pricing, multinational companies, intra group transactions, Rwanda.