This paper models a Stackelberg tax setting game between two revenue-maximizing countries which compete for the location of a single production plant owned by a multinational firm. We introduce the possibility of profit-shifting activities by the multinational firm and investigate how a change in the costs of profit shifting affects equilibrium tax rates, revenue, and the tax burden of the multinational firm. We show that in most cases, tax rates of the two countries will be higher under profit shifting than without. If the costs for profit shifting are not too low, the strategic adjustment of profit tax rates will typically harm the multinational firm.