Debt and Transfer Pricing: Implications on Business Tax Policy

25 Pages Posted: 28 Oct 2020 Last revised: 29 Jul 2021

See all articles by Nicola Comincioli

Nicola Comincioli

University of Brescia

Paolo M. Panteghini

Università degli studi di Brescia; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Sergio Vergalli

University of Brescia - Department of Economics; Fondazione Eni Enrico Mattei (FEEM), Milan

Date Written: October 27, 2020

Abstract

In this article we introduce model to describe the behavior of a multinational company (MNC) that operates transfer pricing and debt shifting, with the purpose of incrementing its value, intended as the sum of equity and debt. We compute, in a stochastic environment and under default risk, the optimal shares of profit and debt to be shifted and show how they are affected by exogenous features of the market. In addition, by means of a numerical analysis, we simulate and quantify the benefit arising from the exploitation of tax avoidance practices and study the corresponding impact on MNC's fundamental indicators. A wide sensitivity analysis on model's parameters is also provided.

Keywords: Capital Structure, Default Risk, Business Taxation and Welfare

JEL Classification: H25, G33, G38

Suggested Citation

Comincioli, Nicola and Panteghini, Paolo M. and Vergalli, Sergio, Debt and Transfer Pricing: Implications on Business Tax Policy (October 27, 2020). FEEM Working Paper No. 16.2020, Available at SSRN: https://ssrn.com/abstract=3719827 or http://dx.doi.org/10.2139/ssrn.3719827

Nicola Comincioli (Contact Author)

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

Paolo M. Panteghini

Università degli studi di Brescia ( email )

Via San Faustino 74/B
Brescia, Brescia 25122
Italy
0302988816 (Phone)
25122 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Sergio Vergalli

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

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