Tax havens and cross-border licensing with transfer pricing regulation

Jay Pil Choi (), Jota Ishikawa () and Hirofumi Okoshi
Additional contact information
Jay Pil Choi: Michigan State University
Jota Ishikawa: Gakushuin University

International Tax and Public Finance, 2024, vol. 31, issue 2, No 2, 333-366

Abstract: Abstract Multinational enterprises (MNEs) have incentive to reduce tax payment through transfer pricing. The incentive is stronger when MNEs own intangibles, because it is easy to transfer them across countries. To mitigate such strategic tax planning, the OECD proposes the arm’s length principle (ALP). This paper deals with technology patents as an example of intangibles and investigates how the ALP affects MNEs’ licensing strategies and welfare in a model with a tax haven. The ALP may distort MNEs’ licensing decisions, because providing a license to unrelated firms restricts MNEs’ profit-shifting opportunities due to the emergence of comparable transaction. Interestingly, the termination of licensing in the presence of the ALP may worsen domestic welfare if the (potential) licensee and the MNE’s subsidiary do not compete in the domestic market but may improve welfare if they compete. The results under ad valorem royalty are in distinct contrast with those under per-unit royalty.

Keywords: Multinational enterprises; Intangibles; Licensing; Transfer pricing; Arm’s length principle (search for similar items in EconPapers)
JEL-codes: D45 F23 H26 L12 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10797-022-09770-w Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:kap:itaxpf:v:31:y:2024:i:2:d:10.1007_s10797-022-09770-w

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

DOI: 10.1007/s10797-022-09770-w

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 ().