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Multinationals And The Relationship Between Strategic And Tax Transfer Prices

  • Charles E. Hyde
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    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.

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    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 822.

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    Length: 26 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:mlb:wpaper:822
    Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
    Phone: +61 3 8344 5355
    Fax: +61 3 8344 6899
    Web page: http://www.economics.unimelb.edu.au
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    1. 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.
    2. 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.
    3. 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.
    4. Haufler, A. & Schjelderup, G., 1999. "Corporate Tax Systems and Cross Country Profit Shifting," Papers 1/99, Norwegian School of Economics and Business Administration-.
    5. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July.
    6. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
    7. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
    8. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
    9. Nielsen, Soren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2001. "Tax Spillovers under Separate accounting and Formula Apportionment," CEPR Discussion Papers 2831, C.E.P.R. Discussion Papers.
    10. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer, vol. 4(3), pages 277-290, July.
    11. Holmstrom, Bengt & Tirole, Jean, 1991. "Transfer Pricing and Organizational Form," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(2), pages 201-28, Fall.
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