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

Liu, Li; Schmidt‐Eisenlohr, Tim; Guo, Dongxian

doi:10.2139/ssrn.3009883

Cited by 22 publications

(28 citation statements)

References 24 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Earlier empirical studies show that at the aggregate level, differences in the statutory corporate tax rate between the US and its trading partners substantially influence the balance and pattern of intra-firm trade in the US (Clausing, 2001(Clausing, , 2006. Later studies provide more 6 direct evidence, showing that the price wedge between the arm's-length price for unrelated transactions and the transfer price for related-party transactions varies systematically with corporate tax rate differentials faced by MNCs in the U.S. (Clausing, 2003;Bernard et al, 2006;Flaaen, 2016), Denmark (Cristea and Nguyen, 2016), France (Davies et al, 2017), Germany (Hebous and Johannesen, 2015), and the UK (Liu et al, 2017). The size of the effect, however, differs between studies, reflecting possible differences between countries, sectors and firms, as well as in the empirical sample and estimation methods.…”

Section: Transfer Mispricingmentioning

confidence: 99%

International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots

Beer

Mooij

Liu

2019

Journal of Economic Surveys

Self Cite

160

View full text Add to dashboard Cite

This paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations. It surveys evidence on main channels of corporate tax avoidance including transfer mispricing, international debt shifting, treaty shopping, tax deferral and corporate inversions. Moreover, it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting. We find that the literature suggests that, for the most recent year, a 1 percentage-point lower corporate tax rate compared to other countries will expand before-tax income by 1.5 percent-an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time. The literature on tax avoidance still has several unresolved puzzles and blind spots that require further research. JEL-Codes: F230, H250. participants at the IMF "Evaluating Tax Reform" conference and Fiscal Affairs Department seminar for helpful comments. We are grateful to Jost Heckmeyer and Michael Overesch for sharing their dataset for replication purposes. Any remaining errors are our own. 5 Taxes in high-tax locations can also be avoided by changing the location of foreign direct investment (FDI). This paper, however, focuses only on tax avoidance through profit shifting, not through a change in the location of real capital (for a survey of taxation and FDI, see e.g. De Mooij and Ederveen 2008). 6 Transfer mispricing has also implications for national accounts statistics and the measurement of GDP growth, see e.g. Guvenen et al (2017).

show abstract

Section: Transfer Mispricingmentioning

confidence: 99%

International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots

Beer

Mooij

Liu

2019

Journal of Economic Surveys

Self Cite

160

View full text Add to dashboard Cite

show abstract

“…19 In Figure 5a, I report the basic results; the full review is available in the online appendix. What is most striking is the enormous variation in point estimates across studies from 8.0 in Clausing (2003) to -1.1 in Liu et al (2017). The overall average estimate (weighted by study) is 1.3, which is twice as large as the preferred estimate in this paper of 0.51.…”

Section: Transfer Mispricing In South Africa Vs Developed Countriesmentioning

confidence: 49%

“…In Table 9, I report the preferred estimate of each paper and the resulting estimated tax loss. Strikingly, five out of six papers find that the preferred estimate of the semi-elasticity is between 0.2 and 0.7-the exception being Liu et al (2017) with a preferred estimate of 2.7. Despite the large semi-elasticity, Liu et al (2018) still find that tax losses are small.…”

Section: Transfer Mispricing In South Africa Vs Developed Countriesmentioning

confidence: 93%

“…Contrary to common belief, I do not find that firms in South Africa are more aggressive in their transfer mispricing compared to firms operating in developed countries. I do a systematic review of the seven prior studies of transfer mispricing in Denmark (Cristea and Nguyen 2016); France (Vicard 2014;Davies et al 2018); the United States (Clausing 2003;Bernard et al 2006;Flaaen 2017) and the United Kingdom (Liu et al 2017). I find that the estimated semi-elasticity of transfer mispricing with respect to the tax differential varies significantly across and even within studies.…”

Section: Introductionmentioning

confidence: 95%

“…Most recently, Davies et al (2018) investigate transfer mispricing in France using a method directly comparable to the one used in this paper, which makes their results a good point of reference for this study. Also relying on transaction-level customs data, Vicard (2014), Cristea and Nguyen (2016) and Liu et al (2017) find strong evidence of transfer mispricing in France, Denmark, and the UK. They do not, however, observe whether transactions are in fact related but instead approximate this using firm ownership data.…”

Section: Related Literature On Profit Shiftingmentioning

confidence: 99%

See 2 more Smart Citations

Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data

Wier

2018

WIDER Working Paper

View full text Add to dashboard Cite

provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research. The Institute is funded through income from an endowment fund with additional contributions to its work programme from Finland, Sweden, and the United Kingdom as well as earmarked contributions for specific projects from a variety of donors.

show abstract

The heterogeneous impact of Brexit: Early indications from the FTSE

Davies

Studnicka

2018

European Economic Review

View full text Add to dashboard Cite

The UK's decision to leave the EU is surrounded by several studies simulating its potential effects. Alternatively, we examine expectations embodied in stock returns using a two-part estimation process. While most firms' prices fell, there was considerable heterogeneity in their relative changes. We show that this heterogeneity can be explained by the firm's global value chain, with heavily European firms doing relatively worse. For firms with few imported intermediates, this was partially offset by a greater Sterling depreciation. These changes were primarily in the first two days and highly persistent. Understanding these movements gives a better understanding Brexit's potential effects.1 Norway has a free trade agreement with the EU but is not a member of the EU's customs union, so it faces the non-tariff barriers that apply to non-EU countries.2 Other studies in this vein, which cover various simulation exercises, include Head and Mayer (2015), PWC (2016), Fraser of Allander (2016) (who focus on Scotland), HM Treasury (2016),and OECD (2016). All of these find negative effects of various magnitudes whereas Minford, et al. (2016) finds the potential for positive impacts on the UK. It should be noted that Sampson, et al. (2016) argue that Minford, et al.'s optimism is based on implausible assumptions on trade barrier changes and import elasticities.3 Head and Mayer (2015) describe three possible disadvantages of Brexit for FDI. First, an increase in trade barriers makes production in the UK less attractive because it becomes more costly to ship to the rest of Europe. Second, supplying inputs and staff from brands headquarters becomes more difficult (higher co-ordination costs). Third, UK products become less attractive to EU consumer after Brexit.4 Strictly speaking, this is a return that is 14.4% worse than expectations; since in the long run a firm's return should equal the market, results in our comparison. See below for a detailed discussion of how to 11 Timmer, et al. (2014b) provide a recent overview of this literature. 12 Davies, et al. (forthcoming) find that tariff pass-through within a multinational is roughly half that of an arm's length transaction.13 See London Stock Exchange (2010) for details.

show abstract

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

Cited by 22 publications

References 24 publications

International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots

International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots

Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data

The heterogeneous impact of Brexit: Early indications from the FTSE

Contact Info

Product

Resources

About