Final answer:
The income shifting strategy takes advantage of varying tax rates to reduce overall tax liability by shifting income from high-tax to low-tax jurisdictions.
Step-by-step explanation:
The income shifting strategy takes advantage of the fact that tax rates vary across taxpayers or jurisdictions. By shifting income from high-tax jurisdictions or taxpayers to low-tax jurisdictions or taxpayers, individuals or companies can reduce their overall tax liability.
For example, a company may choose to locate its headquarters in a country with a lower corporate tax rate, even if its main operations are in a different country. This allows the company to pay less in taxes overall.
However, it's important to note that income shifting strategies must be done in compliance with tax laws and regulations. Some jurisdictions have specific rules and regulations to prevent abusive income shifting practices.