International profit allocation has become the object of debate in recent years. The internationally well established allocation of taxing rights between residence and source countries is challenged. Time-honoured rules which address different types of business profits are put to the test. Moreover, international tax competition takes its toll: while some countries exert their tax jurisdiction as far as possible, other countries are no longer willing to tax capital income at all cost and prefer an attractive tax environment for investors. Thus, the value of traditional legal and economic principles for the international coordination of taxation is put into question. A clearly superior approach to the problems of international taxation does not exist. It is more convincing to focus on the reduction of detrimental "discontinuities" in the choice between different forms of economic market participation.

An important aspect of the international allocation of taxing rights concerns the distinction of debt and equity. The traditionally different tax treatment of debt and equity contrasts with the demand for strict equal treatment of different ways of funding which is put forward by economists. Moreover, hybrid financial instruments represent a special challenge for international profit allocation as they often lead to conflicts of qualification between different tax jurisdictions.

Another research focus is transfer pricing. The relevance of transfer prices for the international allocation of profits results from the fact that a large part of world trade is conducted within groups of companies. In particular, transfer prices can be used for profit shifting. The use of intellectual property plays an important role in this regard.