Transfer pricing of intrafirm sales as a profit shifting channel: evidence from German firm data

Michael Overesch

No 06-084, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper investigates whether transfer pricing of intrafirm sales within multinationals represents an important channel of company tax planning. A simple theoretical model, considering profit shifting activities of a multinational company, is used to obtain empirical implications. The empirical analysis, based on a panel of German multinationals, considers directly the supposed tax response of intrafirm sales. The analysis shows a significantly negative impact of the local tax rate on the size of balance sheet items, which reflect intrafirm sales. Thus, the results suggest that transfer pricing of intrafirm sales constitutes an important channel of companies? profit shifting activities.

Keywords: Taxation; Multinationals; Profit Shifting; Transfer Pricing; Firm-level Data (search for similar items in EconPapers)
JEL-codes: H25 H26 H32 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-acc and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:5477

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