Do Transfer Pricing Laws Limit International Income Shifting? Evidence from European Multinationals

31 Pages Posted: 2 Oct 2013

See all articles by Theresa Lohse

Theresa Lohse

University of Mannheim

Nadine Riedel

Oxford University CBT; University of Hohenheim

Date Written: September 30, 2013

Abstract

In recent years several countries have augmented their national tax laws by transfer pricing legislations which intend to limit the leeway of multinational firms to exploit international corporate tax rate differences 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 firms and tax authorities.

Keywords: corporate taxation, international profit shifting, transfer pricing laws

JEL Classification: H250, F230

Suggested Citation

Lohse, Theresa and Riedel, Nadine, Do Transfer Pricing Laws Limit International Income Shifting? Evidence from European Multinationals (September 30, 2013). CESifo Working Paper Series No. 4404. Available at SSRN: https://ssrn.com/abstract=2334651

Theresa Lohse

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Nadine Riedel (Contact Author)

Oxford University CBT ( email )

Park End Street
Oxford, Oxfordshire OX1 1HP
United Kingdom

University of Hohenheim ( email )

Stuttgart
Germany

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