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
Date Written: 2017-10-04
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
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