Income shifting - Financial definition
Concise definition of the term income shifting
Income shifting in finance refers to the practice of moving income from one taxable entity or time period to another to minimize tax liability.
Comprehensive definition of the term income shifting
Income shifting is a strategic maneuver employed in financial planning and corporate management to reduce tax burdens by reallocating income. This can involve transferring profits from higher-tax jurisdictions to lower-tax jurisdictions within multinational corporations or deferring income to future periods when lower tax rates are anticipated.
Common techniques include transfer pricing, reallocation of deductions, and altering the structure of business transactions. For instance, a company might use intercompany loans to shift profits to subsidiaries in countries with favorable tax rates. Income shifting is scrutinized by tax authorities to prevent tax avoidance and ensure compliance with regulations.