Abusive Transfer Pricing and Economic Activity

22 Pages Posted: 7 Oct 2014

See all articles by Soren Bo Nielsen

Soren Bo Nielsen

Copenhagen Business School - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Dirk Schindler

Erasmus School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Guttorm Schjelderup

Norwegian School of Economics (NHH) - Department of Business and Management Science

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Date Written: September 29, 2014

Abstract

We demonstrate that the choice of the transfer price and its effect on intra-firm trade and investment depends on the probability of detection and thus on the measure, on which tax authorities base their audit. A policy implication of the paper is that it should be preferable to condition audits on the amount of income shifted rather than on the distortion of the transfer price proper. Another policy finding is that improving the quality of tax law might be superior to higher detection effort. The former reduces profit shifting and concealment effort, whereas the latter leads to more wasteful use of resources on concealment and has an ambiguous effect on profits shifted.

Keywords: transfer pricing, investment, concealment costs, economic activity

JEL Classification: H25

Suggested Citation

Nielsen, Soren Bo and Schindler, Dirk and Schjelderup, Guttorm, Abusive Transfer Pricing and Economic Activity (September 29, 2014). CESifo Working Paper Series No. 4975. Available at SSRN: https://ssrn.com/abstract=2506544

Soren Bo Nielsen

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Dirk Schindler (Contact Author)

Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Guttorm Schjelderup

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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