International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

Li Liu, Tim Schmidt-Eisenlohr and Dongxian Guo
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Dongxian Guo: University College London

The Review of Economics and Statistics, 2020, vol. 102, issue 4, 766-778

Abstract: This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It shows that the 2009 tax reform in the United Kingdom, which changed the taxation of corporate profits from a worldwide to a territorial system, led to a substantial increase in transfer mispricing. It also provides evidence for a trade creation effect of transfer mispricing and estimates substantial transfer mispricing in non-tax-haven countries with low- to medium-level corporate tax rates, and in R&D intensive firms.

Date: 2020
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