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Formula Apportionment And Transfer Pricing Under Oligopolistic Competition

Author

Listed:
  • Nielsen, Søren Bo

    (Department of Economics, Copenhagen Business School)

  • Raimondos-Møller, Pascalis

    (Department of Economics, Copenhagen Business School)

  • Schjederup, Guttorm

    (Norwegian School of Economics and Business Administration)

Abstract

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 multination 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.

Suggested Citation

  • Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjederup, Guttorm, 2000. "Formula Apportionment And Transfer Pricing Under Oligopolistic Competition," Working Papers 18-2000, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2000_018
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    1. Douglas Shackelford & Joel Slemrod, 1998. "The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(1), pages 41-59, February.
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    More about this item

    Keywords

    Formula apportionment; Transfer pricing; Oligopolistic competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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