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Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data

Ludvig Wier

Journal of Public Economics, 2020, vol. 184, issue C

Abstract: This paper provides the first direct systematic evidence of profit shifting through transfer mispricing in a developing country. Using South African transaction-level customs data, I directly test for transfer price deviations from arm's-length pricing. I find that multinational firms in South Africa manipulate transfer prices in order to shift taxable profits to low-tax countries. The estimated tax loss relating to imported goods alone is 0.5% of corporate tax payments. My estimates do not support the common belief that transfer mispricing in South Africa is more severe than in advanced economies. I find that an OECD-recommended reform had no long-term impact on transfer mispricing but argue that the method used in this paper provides a cost-efficient way to curb transfer mispricing.

Keywords: Tax; International taxation; Profit shifting; Multinational firms; Developing countries (search for similar items in EconPapers)
JEL-codes: H25 H26 H87 O23 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:184:y:2020:i:c:s0047272720300177

DOI: 10.1016/j.jpubeco.2020.104153

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