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

39 Pages Posted: 6 Oct 2017 Last revised: 7 Oct 2017

See all articles by Li Liu

Li Liu

International Monetary Fund (IMF)

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System

Dongxian Guo

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-10-04

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 Linked Trade-Tax Statistics in the UK (2017-10-04). FRB International Finance Discussion Paper No. 1214. Available at SSRN: https://ssrn.com/abstract=3048729 or http://dx.doi.org/10.17016/IFDP.2017.1214

Li Liu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Tim Schmidt-Eisenlohr

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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