Transfer Pricing and Investment - How OECD Transfer Pricing Rules Affect Investment Decisions

Søren Bo Nielsen, Dirk Schindler and Guttorm Schjelderup

No 11887, CESifo Working Paper Series from CESifo

Abstract: We study how the OECD transfer pricing guidelines aimed at curbing tax-motivated transfer pricing practices affect investment incentives. Our theoretical model integrates the different OECD's transfer pricing methods into the tax planning cost function of an MNC to evaluate how the choice of transfer price and quantity produced determine the amount of profit shifted. When the transfer pricing method used emphasizes the choice of transfer price over the choice of the quantity of the intermediate good, tax-motivated transfer pricing has positive investment effects. However, when the transfer pricing method treats profit shifting by price and quantity symmetrically, tax-motivated transfer pricing does not impact investment on the intensive margin. Our study has potential policy implications and also produces suggestions for empirical research on transfer pricing and investment.

Keywords: multinational corporations; corporate tax avoidance; transfer pricing; OECD transfer pricing rules; investment effects (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 M48 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11887

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