Transfer pricing regulation and tax competition

• 成果类型: Article
• 署名作者: Choi, Jay Pil; Furusawa, Taiji; Ishikawa, Jota
• 署名单位: Michigan State University; Yonsei University; University of Tokyo; Hitotsubashi University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2020.103367
• 发表日期: 2020
• 关键词: Multinational enterprise; corporate tax; transfer pricing; Foreign direct investment; Arm's length principle; Tax competition

摘要

The paper analyzes multinational enterprises' incentives to manipulate internal transfer prices to take advantage of tax differences across countries, and implications of transfer-pricing regulations as a countermeasure against such profit shifting. We find that tax-motivated foreign direct investment (FDI) may entail inefficient internal production but may benefit consumers. Thus, encouraging transfer-pricing behavior to some extent can enhance social welfare. Furthermore, we consider tax competition between two countries to explore its interplay with transfer-pricing regulations. We show that the FDI source country will be willing to set a higher tax rate and tolerate some profit shifting to a tax haven country if the regulation is tight enough. We also indicate a novel mechanism through which it is the larger country that undertakes tax-motivated FDI, the pattern we often observe in reality. (C) 2020 The Author(s). Published by Elsevier B.V.