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Transfer Pricing as a Tax Compliance Risk

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Author Info

  • Jost, Sven P.

    () (Department of Economics and Statistics, University of Innsbruck)

  • Pfaffermayr, Michael

    () (Department of Economics and Statistics, University of Innsbruck)

  • Winner, Hannes

    () (University of Salzburg)

Abstract

This paper contributes to the empirical literature on the transfer pricing behavior of multinational firms. Previous research mainly focuses on transfer pricing as a means of tax optimization. Our approach concentrates on transfer pricing as a critical compliance issue. Specifically, we investigate whether and to what extent the awareness of transfer pricing as a tax compliance issue responds to country and industry characteristics as well as firm-specifics. Empirically, the transfer pricing risk awareness is measured as a professional assessment reported by the person with ultimate responsibility for transfer pricing in their company. Based on a unique global survey conducted by a Big 4 accounting firm in 2007 and 2008, we estimate the number of firms reporting transfer pricing being the largest risk issue with regard to subsequent tax payments. We find that transfer pricing risk awareness depends on variables accounting for general tax and transfer pricing specific strategies, the types and characteristics of intercompany transactions the multinational firms are involved in, their individual transfer pricing compliance efforts and resources dedicated to transfer pricing matters.

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Bibliographic Info

Paper provided by University of Salzburg in its series Working Papers in Economics and Finance with number 2010-6.

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Length: 27 pages
Date of creation: 03 Feb 2010
Date of revision:
Handle: RePEc:ris:sbgwpe:2010_006

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Keywords: Transfer pricing; international taxation; multinational firms; tax risk management;

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  1. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
  2. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
  3. Peter Egger & Wolfgang Eggert & Hannes Winner, 2007. "Saving Taxes Through Foreign Plant Ownership," CESifo Working Paper Series 1887, CESifo Group Munich.
  4. Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2207-2223, September.
  5. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July.
  6. P. B. Oyelere & C. R. Emmanuel, 1998. "International transfer pricing and income shifting: evidence from the UK," European Accounting Review, Taylor and Francis Journals, vol. 7(4), pages 623-635.
  7. Horst, Thomas, 1971. "The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1059-72, Sept.-Oct.
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