Is Transfer Pricing Harmonization the Panacea? Reporting Transparency, Standards Consistency, and Tax Avoidance

56 Pages Posted: 2 Aug 2021 Last revised: 16 Apr 2024

See all articles by Markus Diller

Markus Diller

University of Passau

Johannes Lorenz

Carl von Ossietzky University of Oldenburg; TRR 266 Accounting for Transparency

Georg Thomas Schneider

University of Graz

Caren Sureth-Sloane

Paderborn University; Vienna University of Economics and Business; TRR 266 Accounting for Transparency

Date Written: July 29, 2021

Abstract

This study investigates the impact of the harmonization of tax transfer pricing across jurisdictions on multinational companies’ reporting and tax authorities’ auditing strategies. Applying a game theoretical approach, we assess how consistent standards and enhanced reporting transparency influence firms’ tax avoidance and profits and countries’ tax revenue. Our analysis reveals that, while harmonization is generally perceived as discouraging tax avoidance, the effects depend on firms’ and countries’ profiles. We show that multinationals’ equilibrium profit can increase or decrease with enhanced reporting transparency, depending on whether standards are consistent. We find that low-tax countries benefit in tax revenues from greater transparency, while high-tax countries may prefer less. Interestingly, high-tax countries may even benefit from inconsistency in standards. These findings challenge the expected effects of harmonization and offer valuable insights for policymakers aiming to curb tax avoidance and mitigate the risk of double taxation.

Keywords: transfer pricing; transfer pricing inconsistency; tax avoidance; tax harmonization; real effects

JEL Classification: H20, H26, C72, K34, F53

Suggested Citation

Diller, Markus and Lorenz, Johannes and Schneider, Georg Thomas and Sureth-Sloane, Caren, Is Transfer Pricing Harmonization the Panacea? Reporting Transparency, Standards Consistency, and Tax Avoidance (July 29, 2021). TRR 266 Accounting for Transparency Working Paper Series No. 57, WU International Taxation Research Paper Series No. 2021-05, Available at SSRN: https://ssrn.com/abstract=3895611 or http://dx.doi.org/10.2139/ssrn.3895611

Markus Diller (Contact Author)

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany

Johannes Lorenz

Carl von Ossietzky University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, 26129
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Georg Thomas Schneider

University of Graz ( email )

Universitätsstrasse 15/G1
Graz, 8010
Austria

Caren Sureth-Sloane

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

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