Decomposing the Margins of Transfer Pricing
Andrea Lassmann and
Benedikt Zoller-Rydzek ()
No 19-450, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich
This paper examines the determinants and margins of profit shifting through transferpricing. We develop a theory model, where transfer pricing patterns are governed by a generalized concealment cost function (CCF). Our empirical analysis draws on micro-level data about transaction-level imports, firm-level characteristics, as well as tax differentials between regions in Switzerland and countries abroad. We find, both theoretically and empirically, that more productive multinational firms deviate less from the armsâ€™ length price and trade lower quantities, compared to MNEs with lower productivity. Moreover, the decision of firms to engage in transfer pricing depends negatively on a fixed cost component in the CCF, as well as trade costs. The model allows us to estimate a theory-consistent concealment cost function, which can be used for counterfactual analysis.
Keywords: Multinational firms; tax avoidance; tax havens; transferpricing (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 H32 (search for similar items in EconPapers)
Pages: 27 pages
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:19-450
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