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Transfer pricing of intrafirm sales as a profit shifting channel : evidence from German firm data

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Author Info
Overesch, Michael
Abstract

This paper investigates whether transfer pricing of intrafirm sales within multinationals represents an important channel of company tax planning. A simple theoretical model, considering profit shifting activities of a multinational company, is used to obtain empirical implications. The empirical analysis, based on a panel of German multinationals, considers directly the supposed tax response of intrafirm sales. The analysis shows a significantly negative impact of the local tax rate on the size of balance sheet items, which reflect intrafirm sales. Thus, the results suggest that transfer pricing of intrafirm sales constitutes an important channel of companies? profit shifting activities. --

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-84.

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Date of creation: 2006
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Handle: RePEc:zbw:zewdip:5477

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Related research
Keywords: Taxation; Multinationals; Profit Shifting; Transfer Pricing; Firm-level Data;

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Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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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. Jean-Thomas Bernard & Robert J. Weiner, 1989. "Multinational Corporations, Transfer Prices, and Taxes: Evidence from the U.S. Petroleum Industry," NBER Working Papers 3013, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July. [Downloadable!] (restricted)
  4. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2004. "The costs of shared ownership: Evidence from international joint ventures," Journal of Financial Economics, Elsevier, vol. 73(2), pages 323-374, August. [Downloadable!] (restricted)
  5. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
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  6. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December. [Downloadable!] (restricted)
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  7. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer, vol. 4(3), pages 277-290, July. [Downloadable!] (restricted)
  8. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Alfons Weichenrieder, 2007. "Profit Shifting in the EU: Evidence from Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. 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)
  11. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation. [Downloadable!]
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  1. Dischinger, Matthias, 2008. "Profit Shifting by Multinationals and the Ownership Share: Evidence from European Micro Data," Discussion Papers in Economics 2029, University of Munich, Department of Economics. [Downloadable!]
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