Knocking on Tax Haven's Door: Multinational Firms and Transfer Pricing

32 Pages Posted: 29 Sep 2015

See all articles by Ronald B. Davies

Ronald B. Davies

University College Dublin (UCD)

Julien Martin

University of Quebec at Montreal (UQAM)

Mathieu Parenti

Catholic University of Louvain (UCL)

Farid Toubal

Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management; National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: September 1, 2015

Abstract

This paper analyzes the transfer pricing of multinational firms. Intra-firm prices may systematically deviate from arm’s length prices for two motives: pricing to market and tax avoidance. Using French firm-level data on arm’s length and intra-firm export prices, we find that the sensitivity of intra-firm prices to foreign taxes is reinforced once we control for pricing-to-market determinants. Most importantly, we find no evidence of tax avoidance if we disregard tax haven destinations. Tax avoidance through transfer pricing is economically sizable. The bulk of this loss is driven by the exports of 450 firms to ten tax havens.

Keywords: pricing to market, tax havens, transfer pricing

JEL Classification: F23, H25, H32

Suggested Citation

Davies, Ronald B. and Martin, Julien and Parenti, Mathieu and Toubal, Farid, Knocking on Tax Haven's Door: Multinational Firms and Transfer Pricing (September 1, 2015). CEPR Discussion Paper No. DP10844. Available at SSRN: https://ssrn.com/abstract=2666947

Ronald B. Davies (Contact Author)

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland

Julien Martin

University of Quebec at Montreal (UQAM) ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Mathieu Parenti

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Farid Toubal

Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management ( email )

France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

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