Profit Shifting Through Transfer Pricing: Evidence from French Firm Level Trade Data

30 Pages Posted: 6 Jun 2015

See all articles by Vincent Vicard

Vincent Vicard

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: May 1, 2015

Abstract

This paper provides direct evidence of profit shifting to low tax jurisdictions by multinational companies through transfer prices. Using detailed firm level export and import data by origin/destination and product for France, I show that the price wedge between arm's length and related party transactions varies systematically with the differential in corporate tax rate between France and the partner country. Profit shifting through transfer prices is estimated to have reduced the French corporate tax base by 8 bn USD in 2008. Its extent is growing in France over the 2000s. The related missing tax revenues amounts to 10% of the corporate tax paid by multinational groups located in France that trade with related party.

Keywords: Transfer pricing, Multinational firms, Tax avoidance, Base erosion, International trade, Investment income

JEL Classification: H26, H25, H32, F14, F23

Suggested Citation

Vicard, Vincent, Profit Shifting Through Transfer Pricing: Evidence from French Firm Level Trade Data (May 1, 2015). Banque de France Working Paper No. 555, Available at SSRN: https://ssrn.com/abstract=2614864 or http://dx.doi.org/10.2139/ssrn.2614864

Vincent Vicard (Contact Author)

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

20, avenur de Ségur
Paris Cedex 07, F-75334
France

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