The links between intangible income, intercompany transactions, income shifting and the choice of location are investigated using data on U.S. parent corporations and their manufacturing subsidiaries. The objective is to better understand the income shifting process and its implications. In particular, do opportunities for income shifting distort "real" behavior such as the choice of location and the volume of intercompany transactions? Do prospective benefits from income shifting change behavior in both high-tax and low-tax locations? The results present a coherent, consistent picture. Income derived from R&D based intangibles accounts for about half of the income shifted from high-tax to low-tax countries. R&D intensive subsidiaries engage in a greater volume of intercompany transactions and, therefore, have more opportunities for income shifting. In addition, subsidiaries in locations with either very high or very low statutory tax rates, with a strong incentive to shift income in or out, also undertake a significantly larger volume of intercompany transactions. Finally, R&D intensive U.S. parent companies respond to the opportunities for income shifting by investing in countries with either very high or very low statutory tax rates. As a sidelight, we find that the allocation of debt among subsidiaries and the shifting of R&D based intangible income together account for virtually all of the observed difference in profitability between high and low tax countries.