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International transfer pricing and income shifting: evidence from the UK

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Author Info
P. B. Oyelere, C. R. Emmanuel
Abstract

The potential use of international transfer pricing (ITP) as an income-shifting mechanism by multinational enterprises (MNEs) has long been recognized. However, there is relatively little evidence to substantiate or discount this claim in relation to UK-based foreign-controlled enterprises (FCEs). This paper examines the possible use of ITP as an income-shifting mechanism by FCEs operating in the UK. The methodological approach involves the comparison of the profitability (performance) and dividend (post-performance) distributions of a sample of FCEs with those of UK-controlled enterprises (UKCEs) over a two-year period. The two samples are matched on the basis of their total assets (capability). Results reveal significant differences in the profitability and dividend distributions of the two groups. FCEs underperform UKCEs, but their level of dividend distribution outstrips those of UKCEs. Based on this sample of seventy-two companies, a firm is more likely to be an FCE, rather than a UKCE, if it reports a combination of lower performance and higher post-performance distribution. Evidence of significant income shifting by FCEs is confirmed and the claim that ITP is the key mechanism for such shifts cannot be dismissed.

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Article provided by Taylor and Francis Journals in its journal European Accounting Review.

Volume (Year): 7 (1998)
Issue (Month): 4 (December)
Pages: 623-635
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Handle: RePEc:taf:euract:v:7:y:1998:i:4:p:623-635

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Buckley, Peter J & Hughes, Jane Frecknall, 1997. "Japanese Transfer Pricing Policy: A Note," Applied Economics Letters, Taylor and Francis Journals, vol. 4(1), pages 13-17, January. [Downloadable!] (restricted)
  2. repec:fth:michin:287 is not listed on IDEAS
  3. David Harris & Randall Morck & Joel Slemrod & Bernard Yeung, 1991. "Income Shifting in U.S. Multinational Corporations," NBER Working Papers 3924, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Dietrich, J. Kimball & Sorensen, Eric, 1984. "An application of logit analysis to prediction of merger targets," Journal of Business Research, Elsevier, vol. 12(3), pages 393-402, September. [Downloadable!] (restricted)
  5. Picciotto, Sol, 1992. "International taxation and intrafirm pricing in transnational corporate groups," Accounting, Organizations and Society, Elsevier, vol. 17(8), pages 759-792, November. [Downloadable!] (restricted)
  6. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May. [Downloadable!] (restricted)
  7. Goodspeed, T-J & White, A-D, 1996. "International taxation," Papers 96-11, Wellesley College - Department of Economics.
  8. Wi Saeng Kim & Esmeralda O Lyn, 1990. "FDI Theories and the Performance of Foreign Multinationals Operating in the U.S," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 21(1), pages 41-54, March. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alnoor Bhimani, 2002. "European management accounting research: traditions in the making," European Accounting Review, Taylor and Francis Journals, vol. 11(1), pages 99-117, May. [Downloadable!] (restricted)
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