Cloud computing has fundamentally changed how companies operate. Companies have quickly adapted by moving their businesses to the cloud, but international tax standards have failed to follow suit. As a result, taxpayers and tax administrations confront significant tax challenges in applying outdated tax principles to this new environment. One particular area that raises perplexing tax issues is the transfer pricing rules. The transfer pricing rules set forth the intercompany price a cloud service provider must charge an affiliate using its cloud services, which ultimately affects the determination of the jurisdiction in which the company’s profits are taxed. This Article argues that, due to the nature of the cloud, the current transfer pricing rules give U.S. multinational enterprises substantial freedom to shift profits to low-tax jurisdictions and avoid tax in the United States in a practice commonly referred to as base erosion and profit shifting, or “BEPS.” This type of aggressive international tax planning has become a pressing problem worldwide that poses a serious risk to tax sovereignty, tax fairness, and the integrity of the corporate income tax. The Organisation for Economic Cooperation and Development (“OECD”) launched an action plan to address the BEPS problem, but the OECD’s work falls short of coming up with an innovative solution that will minimize the artificial shifting of profits abroad. In response, this Article recommends that, given the features of this new business environment, an international tax reform solution that adopts formulary apportionment or the profit-split methodology on a coordinated global basis would better address BEPS and minimize the undesirable policy results of our current transfer pricing rules.