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Debt and Transfer Pricing: Implications on Business Tax Policy

Author

Listed:
  • Nicola Comincioli

    (University of Brescia and Fondazione Eni Enrico Mattei)

  • Paolo M. Panteghini

    (University of Brescia and CESifo)

  • Sergio Vergalli

    (University of Brescia and Fondazione Eni Enrico Mattei)

Abstract

In this article we introduce model to describe the behavior of a multinational company (MNC) that operates transfer pricing and debt shifting, with the purpose of incrementing its value, intended as the sum of equity and debt. We compute, in a stochastic environment and under default risk, the optimal shares of profit and debt to be shifted and show how they are a ected by exogenous features of the market. In addition, by means of a numerical analysis, we simulate and quantify the benefit arising from the exploitation of tax avoidance practices and study the corresponding impact on MNC's fundamental indicators. A wide sensitivity analysis on model's parameters is also provided.

Suggested Citation

  • Nicola Comincioli & Paolo M. Panteghini & Sergio Vergalli, 2020. "Debt and Transfer Pricing: Implications on Business Tax Policy," Working Papers 2020.16, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2020.16
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    Keywords

    Capital Structure; Default Risk; Business Taxation and Welfare;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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