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ResearchPaper
2012
The impact of transfer pricing regulations on profit shifting within European multinationals
The impact of transfer pricing regulations on profit shifting within European multinationals
Abstract (English)
Over the past decade, several countries augmented their national tax
law by transfer pricing legislations in order to limit opportunities for tax-
motivated transfer price distortions and the associated relocation of multna-
tional income from their borders. The aim of this paper is to empirically
investigate the impact of transfer pricing laws on multinational profit shifting
behaviour. To do so, we collect unique data on the evolution of national trans-
fer price requirements in Europe over the past decade. This data is linked to
accounting information on multinational firms in the EU and to corporate
tax rate data. In line with previous studies, we find that multinational firms
engage in significant tax-motivated profit shifting behaviour. The analysis fur-
thermore suggests that transfer price documentation rules are instrumental
in restricting income shifting activities. The effect is statistically significant
and economically relevant. Our analysis thus underpins the benefits of im-
plementing transfer price documentation requirements and suggests that they
may be socially desirable despite the high administrative burden they impose
on firms and tax authorities.
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Publication series
FZID discussion papers; 61
Published in
Faculty
State Institutes
Faculty of Business, Economics and Social Sciences
Faculty of Business, Economics and Social Sciences
Institute
Forschungszentrum Innovation und Dienstleistung
Institute of Economics
Institute of Economics
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Language
German
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Classification (DDC)
330 Economics