International Journal of Advanced Educational Research

International Journal of Advanced Educational Research


International Journal of Advanced Educational Research
International Journal of Advanced Educational Research
Vol. 4, Issue 3 (2019)

Determinants of profit shifting by multinational companies in developing countries: A case of Rwanda


Dr. Daniel Twesige, Dr. Faustin Gasheja

The objective was to examine the determinants 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 the profit shifting by multinational companies in Rwanda. Profit shifting was measured on the basis of total cost as well as taxable income reported by MNEs. The study was guided by theory of optimal transfer prices, agency theory, and accounting theory. The study adopted a descriptive research design. The target population was 72 MNEs registered in large taxpayer office. Data was collected from the audited financial statements using documentation. Inferential statistics were used to ascertain the determinants of profit shifting. The study found out that royalty expenses are not statistically significant to influence the total cost and taxable profit because P-Values are (0.221) and (0.893) respectively for royalties are greater than the significance level of 0.05. There was a positive and significant relationship between finance cost and total cost because the P-value for financial costs is approximately zero (0.000) which is less than the significance level. The study found out that there is a positive and significant relationship between intra group transactions / services with P-Value approximately close to zero (0.000). The study also shows that there was a negative and significant relationship between finance cost and taxable income because the P-value for financial costs is approximately zero (0.000) which is less than the significance level. The study also found out that there is a negative and significant relationship between intra group transactions / services and taxable income with P-Value of (0.000) compared to the significance level of 0.05. 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.
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How to cite this article:
Dr. Daniel Twesige, Dr. Faustin Gasheja. Determinants of profit shifting by multinational companies in developing countries: A case of Rwanda. International Journal of Advanced Educational Research, Volume 4, Issue 3, 2019, Pages 50-57
International Journal of Advanced Educational Research International Journal of Advanced Educational Research