Large multinational companies are regularly suspected of using transfer pricing of intangibles to shift profits from high- to low-tax jurisdictions. We study the optimal transfer prices while endogenizing the location choice of intangibles and considering spillovers. In line with the initial intuition, we find that multinationals locate their intangibles in low-tax jurisdictions and deploy royalty flows to minimize tax payments. However, if multinationals face a trade-off between tax minimization and efficient spillover internalization, the so-called "home bias" might occur. Then, for a large spillover, the intangible is optimally located in the high-tax domestic country. This leads to less severe investment distortions because the spillover is internalized. In addition, the model predicts that curtailing profit shifting possibilities can either harm or facilitate multinationals' overall investments. This depends heavily on unobservable factors such as the underlying accounting system. Therefore, our analysis highlights challenges for the anti-avoidance legislation of governments. / Series: WU International Taxation Research Paper Series