Decomposing the margins of transfer pricing

Arbeitspapier

This paper examines the determinants and margins of profit shifting through transfer pricing. We develop a theory model, where transfer pricing patterns are governed by a generalized concealment cost function (CCF). Our empirical analysis draws on micro-level data about transaction-level imports, firm-level characteristics, as well as tax differentials between regions in Switzerland and countries abroad. We find, both theoretically and empirically, that more productive multinational firms deviate less from the arms' length price and trade lower quantities, compared to MNEs with lower productivity. Moreover, the decision of firms to engage in transfer pricing depends negatively on a fixed cost component in the CCF, as well as trade costs. The model allows us to estimate a theory-consistent concealment cost function, which can be used for counterfactual analysis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: KOF Working Papers ; No. 450

Classification and Topics

• Classification: Wirtschaft ; Multinational Firms; International Business ; Business Taxes and Subsidies including sales and value-added (VAT) ; Tax Evasion and Avoidance ; Fiscal Policies and Behavior of Economic Agents: Firm
• Subject: Multinational firms ; tax avoidance ; tax havens ; transfer pricing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lassmann, Andrea ; Zoller-Rydzek, Benedikt
• Event: Veröffentlichung
• (who): ETH Zurich, KOF Swiss Economic Institute
• (where): Zurich
• (when): 2019

Further information

• DOI: doi:10.3929/ethz-b-000322881
• Handle: http://hdl.handle.net/10419/204785
• Last update: 10.03.2025, 11:42 AM CET