Profit shifting in business is a term with two different interpretations. The more modern use of profit shifting refers to large multinational U.S. based companies shifting their respective profits to other nations with a friendlier and lower income tax rates. This article is written to explain the older and more traditional meaning of profit shifting specifically as it relates to small business.
Profit shifting is the process of moving or transferring bottom line profit from one business or a line of business to another business or line of operation. There are two forms, internal where shifting of value has no effect on the owner’s financial wealth and external where shifting of value decreases the owner’s wealth.