This project analyses in detail some aspects of the current taxation system and determines a few ways in which multinational enterprises might use its loopholes for tax-planning purposes. For example, it is attempted to show the possibilities for profit shifting by multinationals through royalty and interest payments. Once the extent and significance of these issues are empirically determined, one can model some concrete policy recommendations, which would help to optimize the existing tax regulations or to suggest the new ones.Moreover, the focus of this research also lies in studying the effectiveness of existing countermeasures to profit shifting. For instance, this project also investigates the outcomes of implementing strict transfer pricing rules and interest deductibility restrictions in an international framework. These questions are highly relevant not only for the current discussion on base erosion and profit shifting (BEPS) by the OECD, G20, European Commission etc., but are also of high importance for optimizing the tax system in the future.