At a Cost: The Real Effects of Transfer Pricing Regulations

37 Pages Posted: 22 May 2018

See all articles by Ruud A. De Mooij

Ruud A. De Mooij

International Monetary Fund (IMF); CESifo (Center for Economic Studies and Ifo Institute); Oxford University Centre for Business Taxation

Li Liu

International Monetary Fund (IMF)

Date Written: March 2018

Abstract

Unilateral adoption of transfer pricing regulations may have a negative impact on real investment by multinational corporations (MNCs). This paper uses a quasi-experimental research design, exploiting unique panel data on domestic and multinational companies in 27 countries during 2006-2014, to find that MNC affiliates reduce their investment by over 11 percent following the introduction of transfer pricing regulations. There is no significant reduction in total investment by the MNC group, suggesting that these investments are most likely shifted to affiliates in other countries. The impact of transfer pricing regulations corresponds to an increase in the "TPR-adjusted" corporate tax rate by almost one quarter.

Keywords: Foreign direct investment, profit shifting, corporate tax policy, multinational firms, Business Taxes and Subsidies, International Fiscal Issues

JEL Classification: H25, H87, F23

Suggested Citation

De Mooij, Ruud A. and Liu, Li, At a Cost: The Real Effects of Transfer Pricing Regulations (March 2018). IMF Working Paper No. 18/69. Available at SSRN: https://ssrn.com/abstract=3182487

Ruud A. De Mooij (Contact Author)

International Monetary Fund (IMF) ( email )

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oxford University Centre for Business Taxation ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://people.few.eur.nl/demooij/

Li Liu

International Monetary Fund (IMF) ( email )

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

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