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Transfer Pricing and Investment - How OECD Transfer Pricing Rules Affect Investment Decisions

Author

Listed:
  • Søren Bo Nielsen
  • Dirk Schindler
  • Guttorm Schjelderup

Abstract

We study how the OECD transfer pricing guidelines aimed at curbing tax-motivated transfer pricing practices affect investment incentives. Our theoretical model integrates the different OECD's transfer pricing methods into the tax planning cost function of an MNC to evaluate how the choice of transfer price and quantity produced determine the amount of profit shifted. When the transfer pricing method used emphasizes the choice of transfer price over the choice of the quantity of the intermediate good, tax-motivated transfer pricing has positive investment effects. However, when the transfer pricing method treats profit shifting by price and quantity symmetrically, tax-motivated transfer pricing does not impact investment on the intensive margin. Our study has potential policy implications and also produces suggestions for empirical research on transfer pricing and investment.

Suggested Citation

  • Søren Bo Nielsen & Dirk Schindler & Guttorm Schjelderup, 2025. "Transfer Pricing and Investment - How OECD Transfer Pricing Rules Affect Investment Decisions," CESifo Working Paper Series 11887, CESifo.
    • Handle: RePEc:ces:ceswps:_11887
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    More about this item

    Keywords

    multinational corporations; corporate tax avoidance; transfer pricing; OECD transfer pricing rules; investment effects;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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