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Knocking on Tax Haven’s Door: Multinational Firms and Transfer Pricing

Author

Listed:
  • Ronald B. Davies

    (University College Dublin)

  • Julien Martin

    (Université du Québec à Montréal, and CEPR)

  • Mathieu Parenti

    (Université Libre de Bruxelles, and CEPR)

  • Farid Toubal

    (Ecole Normale Supérieure de Cachan, CREST, and CEPII)

Abstract

This paper analyzes the transfer pricing of multinational firms. Intrafirm 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 intrafirm export prices, we find that the sensitivity of intrafirm prices to foreign taxes is reinforced once we control for pricing-to-market determinants. Most important, 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.

Suggested Citation

  • Ronald B. Davies & Julien Martin & Mathieu Parenti & Farid Toubal, 2018. "Knocking on Tax Haven’s Door: Multinational Firms and Transfer Pricing," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 120-134, March.
    • Handle: RePEc:tpr:restat:v:100:y:2018:i:1:p:120-134
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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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