Economics at your fingertips  

Tariff elimination versus tax avoidance: free trade agreements and transfer pricing

Hiroshi Mukunoki and Hirofumi Okoshi

International Tax and Public Finance, 2021, vol. 28, issue 5, No 6, 1188-1210

Abstract: Abstract We explore the new roles of rules of origin (ROO) when multinational enterprises (MNEs) manipulate their transfer prices to avoid a high corporate tax. The ROO under a free trade agreement (FTA) require exporters to identify the origin of exports to be eligible for a preferential tariff rate. We find that a value-added criterion of ROO restricts abusive transfer pricing by MNEs. Interestingly, an FTA with ROO can induce MNEs to shift profits from a low- to high-tax country. Because the ROO augment tax revenues inside FTA countries, they can transform a welfare-reducing FTA into a welfare-improving one.

Keywords: Rules of origin; Free trade agreement; Transfer pricing; Profit shifting; F13; F15; F23; H26 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Tariff Elimination versus Tax Avoidance: Free Trade Agreements and Transfer Pricing (2020) Downloads
Working Paper: Tariff Elimination versus Tax Avoidance: Free Trade Agreements and Transfer Pricing (2019) 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:

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-021-09689-8

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-06-28
Handle: RePEc:kap:itaxpf:v:28:y:2021:i:5:d:10.1007_s10797-021-09689-8