Tax audit efficiency in disguised profit distribution by means of transfer pricing

The differences in tax rates within the countries and the application of lower tax rates by the tax paradise countries, has created possibilities for transferring profits to these countries by means of transfer pricing. Entities can use transfer pricing with the aim of both supporting company management and tax planning. This tax evasion method whose over-riding aim is tax planning, known as ?Disguised Profit Distribution by means of Transfer Pricing? is realized by selling goods from lower prices to related parties or by purchasing goods from these related parties from higher prices.In tax systems within which tax declaration system is valid, the truth of the tax returns has been provided by an efficient tax audit function. States, though in order to grasp taxable income have created legal infrastructure; with the reason of lack of efficient tax audit, they have been exposed to important tax losses due to transfer pricing.The aim of this study is to examine conceptually and theoretically transfer pricing, to explicate transfer pricing regulations and related tax audit applications in Turkey and some other countries and to analyze efficiency of tax audit in the disguised profit distribution by means of transfer pricing in our country. It has been tried to measure efficiency by calculating estimated tax losses due to transfer pricing. The amount of tax losses that are determined as estimation; has shown that tax audit had not been efficient in transfer pricing. In order to minimize corporate tax losses that occured due to transfer pricing, it is required to take precautionary measures oriented in increasing efficiency in tax audit. If the suggestions offered in our study related to increasing efficiency of tax audit in transfer pricing are applied, corporate tax losses will decrease and the increase in direct taxes will contribute to providing tax equity.