Formula Apportionment and Transfer Pricing under Oligopolistic Competition
This paper demonstrates that under conditions of imperfect (oligopolistic) competition, a transition from separate accounting (SA) to formula apportionment (FA) does not eliminate the problem of profit shifting via transfer pricing. In particular, if affiliates of a multinational firm face oligopolistic competition, it is beneficial for the multinational to manipulate transfer prices for tax-saving as well as strategic reasons under both FA and SA. The analysis shows that a switch from SA rules to FA rules may actually strengthen profit shifting activities by multinationals.
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- Guttorm Schjelderup & Alfons J. Weichenrieder, 1998. "Trade, Multinationals and Transfer Pricing Regulations," CESifo Working Paper Series 152, CESifo Group Munich.
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