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Multinationals And The Relationship Between Strategic And Tax Transfer Prices

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  • Charles E. Hyde

Abstract

Multinational enterprises engaging in cross-border, intrafirm trade can use a different price for cost accounting purposes than used for tax accounting purposes. This possibility has not been previously modeled. We study the implications for how both transfer prices are set under separate entity and formula appointment approaches. The relationship between the two prices in the presence of penalties for noncompliance with arm's length pricing is also examined. The results are shown to be robust to alternative market structures and imperfect taxation.

Suggested Citation

  • Charles E. Hyde, 2001. "Multinationals And The Relationship Between Strategic And Tax Transfer Prices," Department of Economics - Working Papers Series 822, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:822
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/822.pdf
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    References listed on IDEAS

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    1. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
    2. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-325, April.
    3. S¯ren Bo Nielsen & Pascalis Raimondos-M¯ller & Guttorm Schjelderup, 2003. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 419-437, April.
    4. Holmstrom, Bengt & Tirole, Jean, 1991. "Transfer Pricing and Organizational Form," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(2), pages 201-228, Fall.
    5. Bucks, Dan R. & Mazerov, Michael, 1993. "The State Solution to the Federal Government's International Transfer Pricing Problem," National Tax Journal, National Tax Association;National Tax Journal, vol. 46(3), pages 385-392, September.
    6. Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January.
    7. Søren Bo Nielsen & Pascalis Raimondos-Møller & Guttorm Schjelderup, "undated". "Tax Spillovers under Separate Accounting and Formula Apportionment," EPRU Working Paper Series 01-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    8. Kant, Chander, 1988. "Endogenous transfer pricing and the effects of uncertain regulation," Journal of International Economics, Elsevier, vol. 24(1-2), pages 147-157, February.
    9. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July.
    10. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    11. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 277-290, July.
    12. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-1373, November.
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