Working Paper: CEPR ID: DP10844
Authors: Ronald Davies; Julien Martin; Mathieu Parenti; Farid Toubal
Abstract: This paper analyzes the transfer pricing of multinational firms. Intra-firm prices may systematically deviate from arm?s length prices for two motives: pricing to market and tax avoidance. Using French firm-level data on arm?s length and intra-firm export prices, we find that the sensitivity of intra-firm prices to foreign taxes is reinforced once we control for pricing-to-market determinants. Most importantly, we find no evidence of tax avoidance if we disregard tax haven destinations. Tax avoidance through transfer pricing is economically sizable. The bulk of this loss is driven by the exports of 450 firms to ten tax havens.
Keywords: pricing to market; tax havens; transfer pricing
JEL Codes: F23; H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate tax rates (K34) | intrafirm prices (L11) |
| tax differentials (H29) | profit shifting through transfer pricing (F16) |
| tax havens (H26) | intrafirm prices (L11) |
| corporate tax rates (K34) | transfer pricing behavior (L11) |
| large firms (L25) | tax avoidance through transfer pricing (H26) |