International Transfer Pricing and Tax Avoidance : Evidence from Linked Trade-Tax Statistics in the UK

RePEc Short ID: psc358
ORCID iD: 0000-0003-0494-9646

Guo, Dongxian; Liu, Li; Schmidt-Eisenlohr, Tim

doi:10.17016/IFDP.2017.1214

Working Paper

International Transfer Pricing and Tax Avoidance : Evidence from Linked Trade-Tax Statistics in the UK

Abstract: 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;

https://doi.org/10.17016/IFDP.2017.1214