Transfer Pricing and Debt Shifting in Multinationals

Dirk Schindler and Guttorm Schjelderup

No 4381, CESifo Working Paper Series from CESifo

Abstract: There is a growing concern that governments lose substantial corporate tax revenue because of profit shifting through transfer-pricing and thin-capitalization strategies. Existing literature studies profit shifting and transfer pricing separately. In practice, the choice of debt-to-asset ratios in affiliates and the transfer price of debt are interrelated management decisions that are also mutually affected by government regulation. This paper models these strategies as intertwined. We find that the tax sensitivity of the corporate tax base depends on whether the debt shifting and transfer pricing are cost complements or substitutes. A second result is that stricter regulation of debt shifting (transfer pricing) can potentially increase the use of transfer pricing (debt shifting) and thus the amount of profits shifted.

Keywords: multinational corporations; profit shifting; debt shifting; concealment costs (search for similar items in EconPapers)
JEL-codes: D21 F23 H25 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Transfer Pricing and Debt Shifting in Multinationals (2014)
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