Ok? I feel like that is Japan's problem.
Why would we base our taxation on them selling switches to themselves? It makes no sense, Nintendo Japan can simply say "oh we sell the switch to Nintendo USA for $298 we make $1 profit on each one" they can effectively make Nintendo USA profit/loss sheet look like whatever they want. That is pretty much my understanding of what apple is doing to the EU, saying Ireland with it conviently low tax rates is the distribution center for all of Europe, shifting the profits to wherever cost them the least and then buying stuff from themselves to get some back. The money is parked in Irish banks but is actually apple/Tim's/shareholder money.
Note: I'm not an expert in multi-national taxes obviously. Just putting my opinion out there and trying to learn some tricks :p
Nintendo makes more money in the US than in Japan.
Under your idea, it is Japan's benefit to not tax foreign profits, not a problem. If it sells a Switch in the US without being subject to US tax or Japan tax, while Microsoft needs to pay 35% US tax to sell an Xbox, Nintendo can basically undercut Microsoft because it is not facing any taxes. To try to make it an even playing field, you should subject both to the same taxes in the same market.
To get away from Nintendo setting whatever prices it wants, the international rule basically is that the prices need to be equivalent to what an unrelated party will pay for it. So Nintendo Japan can only sell it to Nintendo USA at a price that a third party will pay for it. So they sell to Nintendo USA the same price that Best Buy pays for it, and Nintendo USA has the same profit margin as Best Buy.
The "issue" is that you can often find a third party handling a function that has a limited profit margin. Any "solution" to the issue needs to be agreed between all countries, or you still end up with a similar end state. The EU required Ireland to tax Apple and the US is upset (the Obama administration issued a white paper protesting it) because it reduces US tax revenue. China could make a case that there should be more tax paid in China because it is Apple's second largest market but also the market with the most workers dedicated to creating value for Apple (and under Communist theory, more value should be attributed to labor, instead of capital).
