International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

Li Liu; Tim Schmidt-Eisenlohr; Dongxian Guo

doi:10.1162/rest_a_00871

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International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

Li Liu¹; Tim Schmidt-Eisenlohr²; Dongxian Guo³

¹ International Monetary Fund · ² Federal Reserve Board of Governors · ³ University College London

The Review of Economics and Statistics 2020

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It shows that the 2009 tax reform in the United Kingdom, which changed the taxation of corporate profits from a worldwide to a territorial system, led to a substantial increase in transfer mispricing. It also provides evidence for a trade creation effect of transfer mispricing and estimates substantial transfer mispricing in non-tax-haven countries with low- to medium-level corporate tax rates, and in R&D intensive firms.

DOI: 10.1162/rest_a_00871
Volume: 102 (4)
Pages: 766-778
Language: en
Export: BibTeX
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