Tariff elimination versus tax avoidance: Free trade agreements and transfer pricing

Arbeitspapier

This study explores the new roles of rules of origin (ROO) when multinational enterprises (MNEs) manipulate their transfer prices to avoid a high corporate tax. ROO of a free trade agreement (FTA) require exporters to identify the origin of exports to be eligible for a preferential tariff rate. The results suggest that a value-added criterion of ROO restricts MNEs' abusive transfer pricing. Interestingly, an FTA with ROO can induce MNEs to shift profits from a low-tax country to a high-tax country. Because ROO augment tax revenues inside FTA countries, they can transform a welfare-reducing FTA into a welfare-improving FTA.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Munich Discussion Paper ; No. 2020-1

Classification and Topics

• Classification: Wirtschaft ; Trade Policy; International Trade Organizations ; Economic Integration ; Multinational Firms; International Business ; Tax Evasion and Avoidance
• Subject: Rules of origin ; Free trade agreement ; Transfer pricing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mukunoki, Hiroshi ; Okoshi, Hirofumi
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
• (where): München
• (when): 2020

Further information

• DOI: doi:10.5282/ubm/epub.71608
• Handle: http://hdl.handle.net/10419/224121
• URN: urn:nbn:de:bvb:19-epub-71608-6
• Last update: 10.03.2025, 11:42 AM CET