EconPapers    
Economics at your fingertips  
 

Transfer pricing regulation and tax competition

Jay Pil Choi, Taiji Furusawa () and Jota Ishikawa

Journal of International Economics, 2020, vol. 127, issue C

Abstract: The paper analyzes multinational enterprises' incentives to manipulate internal transfer prices to take advantage of tax differences across countries, and implications of transfer-pricing regulations as a countermeasure against such profit shifting. We find that tax-motivated foreign direct investment (FDI) may entail inefficient internal production but may benefit consumers. Thus, encouraging transfer-pricing behavior to some extent can enhance social welfare. Furthermore, we consider tax competition between two countries to explore its interplay with transfer-pricing regulations. We show that the FDI source country will be willing to set a higher tax rate and tolerate some profit shifting to a tax haven country if the regulation is tight enough. We also indicate a novel mechanism through which it is the larger country that undertakes tax-motivated FDI, the pattern we often observe in reality.

Keywords: Multinational enterprise; Corporate tax; Transfer pricing; Foreign direct investment; Arm's length principle; Tax competition (search for similar items in EconPapers)
JEL-codes: F12 F23 H21 H26 L12 L51 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199620300829
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Transfer Pricing Regulation and Tax Competition (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:127:y:2020:i:c:s0022199620300829

DOI: 10.1016/j.jinteco.2020.103367

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-06-30
Handle: RePEc:eee:inecon:v:127:y:2020:i:c:s0022199620300829