International Transfer Pricing and Tax Avoidance: Evidence from the Linked Tax-Trade Statistics in the UK

38 Pages Posted: 31 Jul 2017

See all articles by Li Liu

Li Liu

University of Oxford - Oxford University Centre for Business Taxation; University of Oxford - Said Business School

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System

Dongxian Guo

University of Oxford - Said Business School

Date Written: July 27, 2017

Abstract

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It uncovers three new findings on tax-motivated transfer mispricing in real goods. First, transfer mispricing increases substantially when taxation of foreign profits changes from a worldwide to a territorial approach in the UK, with multinationals shifting more profits into low-tax jurisdictions. Second, transfer mispricing increases with a firm’s R&D intensity. Third, tax-motivated transfer mispricing is concentrated in countries that are not tax havens and have low-to-medium-level corporate tax rates.

Keywords: transfer pricing, corporate taxation avoidance, multinational firms

JEL Classification: F23, H25, H32

Suggested Citation

Liu, Li and Schmidt-Eisenlohr, Tim and Guo, Dongxian, International Transfer Pricing and Tax Avoidance: Evidence from the Linked Tax-Trade Statistics in the UK (July 27, 2017). Available at SSRN: https://ssrn.com/abstract=3009883 or http://dx.doi.org/10.2139/ssrn.3009883

Li Liu

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Tim Schmidt-Eisenlohr (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Dongxian Guo

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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