Transfer Pricing and Debt Shifting in Multinationals

Dirk Schindler and Guttorm Schjelderup

No 2014/22, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: There is a growing concern that governments lose substantial corporate tax revenue due to transfer pricing and debt shifting strategies. Existing literature studies debt shifting and transfer pricing separately. In practice, however, the choice of debt-to-asset ratios in affiliates and the transfer price of internal 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 debt shifting and transfer pricing are cost complements or substitutes. A second result is that stricter regulation of debt shifting and transfer pricing may have the effect of fostering such activities.

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)
Pages: 26 pages
Date: 2014-05-30
New Economics Papers: this item is included in nep-acc and nep-pbe
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Transfer Pricing and Debt Shifting in Multinationals (2013)
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