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At A Cost: the Real Effects of Transfer Pricing Regulations
Author:
Ruud A. de Mooij
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and
Ms. Li Liu
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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 069
Language:
English
Publication Date:
23 Mar 2018
DOI:
https://doi.org/10.5089/9781484347539.001
ISBN:
9781484347539
ISSN:
1018-5941
Pages:
36
Keywords:
WP; parent company; cost of capital; gross investment; tax rate; profit shifting; foreign direct investment; corporate tax policy; multinational firms; MNC investment; company group; investment response; ratio variable; MNC group; Transnational corporations; Transfer pricing rules; Corporate income tax; Transfer pricing; Thin capitalization rules; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Unilateral adoption of transfer pricing regulations may have a negative impact on real investment by multinational corporations (MNCs). This paper uses a quasi-experimental research design, exploiting unique panel data on domestic and multinational companies in 27 countries during 2006-2014, to find that MNC affiliates reduce their investment by over 11 percent following the introduction of transfer pricing regulations. There is no significant reduction in total investment by the MNC group, suggesting that these investments are most likely shifted to affiliates in other countries. The impact of transfer pricing regulations corresponds to an increase in the ``TPR-adjusted'' corporate tax rate by almost one quarter.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund