Transfer Pricing and the Intensity of Tax Rate Competition

Becker, Johannes and Fuest, Clemens (2012) Transfer Pricing and the Intensity of Tax Rate Competition. Economics Letters, 117 (1). pp. 146-148.


This note provides a novel argument why countries may have incentives to allow for some profit shifting to low-tax jurisdictions. The reason is that a tightening of transfer pricing policies by high-tax countries may lead to more aggressive tax rate competition by low-tax countries.

We analyse tax competition in a model with profit shifting through transfer pricing. High-tax countries may limit profit shifting using transfer pricing guidelines. But tightening transfer pricing guidelines may intensify tax rate competition.

Item Type: Article
Keywords: Corporate taxation; Profit shifting; Tax competition
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 14 Mar 2013 08:51
Last Modified: 23 Oct 2015 14:07

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