Formula Apportionment and Transfer Pricing under Oligopolistic Competition

Søren Bo Nielsen, Pascalis Raimondos-Møller () and Guttorm Schjelderup ()

No 01-05, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper demonstrates that under conditions of imperfect (oligopolistic) competition, a transition from separate accounting (SA) to formula apportionment (FA) does not eliminate the problem of profit shifting via transfer pricing. In particular, if affiliates of a multinational firm face oligopolistic competition, it is beneficial for the multinational to manupulate transfer prices for tax-saving as well as strategic reasons under both FA and SA. The analysis shows that a switch from SA rules to FA rules may actually strengthen profit shifting activities by multinationals.

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Related works:
Working Paper: FORMULA APPORTIONMENT AND TRANSFER PRICING UNDER OLIGOPOLISTIC COMPETITION (2000)
Working Paper: Formula Apportionment and Transfer Pricing under Oligopolistic Competition (2001)
Journal Article: Formula Apportionment and Transfer Pricing under Oligopolistic Competition (2003)
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