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Attracting Multinational Firms and Transfer Pricing

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  • Sato, Hideki

Abstract

This paper demonstrates that by providing favourable corporate tax rates, developing countries create incentives for corporate tax evasion. We will demonstrate further that the subsequent tightening of penalties to prevent such evasions has no effect. When corporate tax rates are lower in the country of production than they are in the country of sale, multinational firms possess an incentive to conduct illegal transfer pricing. Furthermore, attempts to strengthen penalties imposed on illegal transfer pricing, within the country of either production or sale, proves counterproductive. As a result, we argue that the governments of developing countries should take into consideration the issue of tax evasion by means of transfer pricing and should provide in-kind services rather than favourable tax rates to attract multinational firms.

Suggested Citation

  • Sato, Hideki, 2018. "Attracting Multinational Firms and Transfer Pricing," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 8(1), pages 27-30.
  • Handle: RePEc:gok:ijdcv1:v:8:y:2018:i:1:p:27-30
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    References listed on IDEAS

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    1. L. W. Copithorne, 1971. "International Corporate Transfer Prices and Government Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 4(3), pages 324-341, August.
    2. Partha Gangopadhyay, 2007. "Competitive Tax Evasion And Transfer Prices," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 347-351.
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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