Transfer Pricing of Intrafirm Sales as a Profit Shifting Channel - Evidence from German Firm Data

29 Pages Posted: 10 Jan 2007 Last revised: 26 Dec 2012

Date Written: 2006

Abstract

This paper investigates whether transfer pricing of intrafirm sales within multinationals represents an important channel of company tax planning. A simple theoretical model, considering profit shifting activities of a multinational company, is used to obtain empirical implications. The empirical analysis, based on a panel of German multinationals, considers directly the supposed tax response of intrafirm sales. The analysis shows a significantly negative impact of the local tax rate on the size of balance sheet items, which reflect intrafirm sales. Thus, the results suggest that transfer pricing of intrafirm sales constitutes an important channel of companies' profit shifting activities.

Keywords: Taxation, Multinationals, Profit Shifting, Transfer Pricing, Firm-level Data

JEL Classification: H25, H26, H32

Suggested Citation

Overesch, Michael, Transfer Pricing of Intrafirm Sales as a Profit Shifting Channel - Evidence from German Firm Data (2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-084. Available at SSRN: https://ssrn.com/abstract=955758 or http://dx.doi.org/10.2139/ssrn.955758

Michael Overesch (Contact Author)

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

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