Negotiated Transfer Prices

Johannes Becker and Ronald Davies

No 201527, Working Papers from School of Economics, University College Dublin

Abstract: The predominant model of tax induced transfer pricing is based on the assumption that profit shifting is due to insufficient enforcement. However, evidence shows that the firms responsible for most profit shifting are also among the most frequently audited. We present an alternative model based on negotiations that avoid costly, yet uncertain, formal proceedings (e.g. court procedures). This model predicts that profit shifting increases in the tax gap even though enforcement is perfect. Further, it suggests that current efforts to streamline international tax law may have the unintended effect of increasing profit shifting.

Keywords: Nash bargaining; Transfer pricing; Tax avoidance; Corporate taxation (search for similar items in EconPapers)
JEL-codes: H25 H32 H87 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2015-11
New Economics Papers: this item is included in nep-acc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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