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Do transfer pricing laws limit international income shifting? Evidence from European multinationals

Theresa Lohse and Nadine Riedel ()
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Theresa Lohse: University of Mannheim

No 1307, Working Papers from Oxford University Centre for Business Taxation

Abstract: In recent years several countries have augmented their national tax laws by transfer pricing legislations which intend to limit the leeway of multinational fi rms to exploit international corporate tax rate diverences and relocate profit to low-tax affiliates by distorting intra-firm transfer prices. The aim of this paper is to empirically investigate whether these laws are instrumental in restricting shifting behaviour. To do so, we exploit unique information on the scope and evolution of national transfer pricing laws and link it with panel data on European multinationals. In line with previous studies, we find evidence for tax-motivated profit shifting. The analysis further suggests that transfer pricing rules significantly reduce shifting activities. The effect is economically relevant, suggesting that the legislations may be socially desirable despite the high administrative burden they impose on fi rms and tax authorities.

Keywords: corporate taxation; international pro t shifting; transfer pricing laws (search for similar items in EconPapers)
JEL-codes: H25 F23 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-bec, nep-hme, nep-iue, nep-law, nep-pbe and nep-pub
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