Keuschnigg, Christian and Devereux, Michael (2008) The distorting arm’s length principle in international transfer pricing. In: Annual Symposium 2008, 16/06/08 - 20/06/08, Centre for Business Taxation, University of Oxford.Full text not available from this repository.
Proﬁt shifting due to manipulation of transfer prices erodes the corporate tax base in high tax countries. To protect tax revenues, governments typically apply the arm’s length principle to ‘correctly’ assess the value of intracompany trade and royalty income based on observed market transactions such as in comparable outsourcing relationships. We develop a model of heterogeneous ﬁrms which are subject to agency costs in external ﬁnancing and choose between outsourcing and foreign direct investment. We show that the application of the arm’s length principle distorts ﬁnancing and investment of multinational ﬁrms, the choice between outsourcing and direct investment, and leads to a reduction of world welfare.
|Item Type:||Conference or Workshop Item (Speech)|
|Keywords:||Corporate taxation; arm’s length principle; agency costs; outsourcing; foreign direct investment|
|Centre:||Oxford University Centre for Business Taxation|
|Date Deposited:||25 May 2012 15:19|
|Last Modified:||23 Oct 2015 14:07|
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