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Transfer pricing rules and competing governments

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  • Pascalis Raimondos-M¯ller

Abstract

The literature on the regulation of multinationals' transfer prices has not considered the possibility that governments may use transfer pricing rules strategically when they compete with other governments. The present paper analyses this case and shows that, even in the absence of agency considerations, a non-cooperative equilibrium is characterised by above-optimal levels of effective taxation. We then derive conditions under which harmonization of transfer pricing rules lead to a Pareto improvement, and show that harmonization according to the 'arm's length' principle--the form of harmonization advocated by the OECD--may not be Pareto improving. Copyright 2002, Oxford University Press.

Suggested Citation

  • Pascalis Raimondos-M¯ller, 2002. "Transfer pricing rules and competing governments," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 230-246, April.
    • Handle: RePEc:oup:oxecpp:v:54:y:2002:i:2:p:230-246
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    Citations

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    Cited by:

    1. Peralta, Susana & Wauthy, Xavier & van Ypersele, Tanguy, 2006. "Should countries control international profit shifting?," Journal of International Economics, Elsevier, vol. 68(1), pages 24-37, January.
    2. Tomáš Buus & Jaroslav Brada, 2010. "VAT and Tax Credits: A Way to Eliminate Tax-Evasive Use of Transfer Prices?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2010(1), pages 28-50.
    3. Kristian Behrens & Susana Peralt & Pierre M. Picard, 2014. "Transfer Pricing Rules, OECD Guidelines, and Market Distortions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(4), pages 650-680, August.
    4. Pehr‐Johan Norbäck & Lars Persson & Jonas Vlachos, 2009. "Cross‐border acquisitions and taxes: efficiency and tax revenues," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1473-1500, November.
    5. Amerighi, Oscar & Peralta, Susana, 2010. "The proximity-concentration trade-off with profit shifting," Journal of Urban Economics, Elsevier, vol. 68(1), pages 90-101, July.
    6. Ioana Ignat, 2021. "Practical Approach Regarding The Benchmark Study In The Context Of A Transfer Pricing Analysis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 119-125, December.
    7. Tomáš Buus & Jaroslav Brada, 2010. "Can Profit-shifting be Resolved by Penalization?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2010(3), pages 56-74.
    8. Choi, Jay Pil & Furusawa, Taiji & Ishikawa, Jota, 2020. "Transfer pricing regulation and tax competition," Journal of International Economics, Elsevier, vol. 127(C).
    9. Renato Matta, 2017. "Contingency planning during the formation of a supply chain," Annals of Operations Research, Springer, vol. 257(1), pages 45-75, October.
    10. Anca D. Cristea & Daniel X. Nguyen, 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 170-202, August.
    11. Jay Pil Choi & Jota Ishikawa & Hirofumi Okoshi, 2024. "Tax havens and cross-border licensing with transfer pricing regulation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 333-366, April.
    12. Jean Hindriks & Susana Peralta & Shlomo Weber, 2014. "Local Taxation of Global Corporation: A Simple Solution," Annals of Economics and Statistics, GENES, issue 113-114, pages 37-65.
    13. Renato Matta, 2019. "Product costing in the strategic formation of a supply chain," Annals of Operations Research, Springer, vol. 272(1), pages 389-427, January.
    14. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
    15. Riedel, Nadine, 2008. "Essays on the Taxation of Multinational Firms," Munich Dissertations in Economics 8530, University of Munich, Department of Economics.
    16. Tomáš Buus & Jaroslav Brada, 2008. "On the Properties of Transfer Pricing Rules [O vlastnostech metod stanovení transferových cen]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2008(3), pages 39-55.
    17. Jie Ma & Pascalis Raimondos, 2015. "Competition for FDI and Profit Shifting," CESifo Working Paper Series 5153, CESifo.
    18. Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues," Working Paper Series 663, Research Institute of Industrial Economics.
    19. Pauwels, Wilfried & Weverbergh, Marcel, 2005. "The Golden Rule in Transfer Pricing Regulation," Research Papers 24170, University of Antwerp, Faculty of Applied Economic Sciences.
    20. Stephen Martin & Jan Vandekerckhove, 2013. "Market Performance Implications of the Transfer Price Rule," Southern Economic Journal, John Wiley & Sons, vol. 80(2), pages 466-487, October.
    21. Jaroslav Brada & Tomáš Buus, 2009. "Detection of Possible Tax-Evasive Transfer Pricing in Multinational Enterprises," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2009(2), pages 65-78.

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