scholarly journals Transfer Pricing: Impact of Taxes and Tariffs in India

2012 ◽  
Vol 37 (4) ◽  
pp. 29-46
Author(s):  
Pradeep Gupta
Keyword(s):  
Multinational Corporations ◽  
Home Country ◽  
Transfer Pricing ◽  
Transfer Price ◽  
Corporate Taxes ◽  
Tax Rates ◽  
Corporate Tax ◽  
Policy Makers ◽  
Corporate Tax Rates ◽  
Transfer Prices

Transfer pricing in an economy is very significant to corporate policy makers, economic policy makers, tax authorities, and regulatory authorities. Transfer pricing manipulation (fixing transfer prices on non-market basis as against arm's length standard) reduces the total quantum of organization's tax liability by shifting accounting profits from high tax to low tax jurisdictions. It changes the relative tax burden of the multinational firms in different countries of their operations and reduces worldwide tax payments of the firm. This paper explores the influence of corporate taxes and product tariffs on reported transfer pricing of Multinational Corporations (MNCs) in India by using the Swenson (2000) model. This study of custom values of import originating from China, France, Germany, Italy, Japan, Singapore, Switzerland, UK, and USA into India reveals that transfer pricing incentives generated by corporate taxes and tariffs provide opportunity for MNCs to manipulate transfer price to maximize profits across world-wide locations of operations and reduce tax liability. The main findings of this paper are: The estimates computed by grouping together products of all industries being imported into India from sample countries reveal that TPI coefficients are positive and significant. Overall, positive and significant coefficients of TPI predict that one per cent reduction in corporate tax rates in the home country of the MNC would cause multinational corporations with affiliated transactions to increase reported transfer prices in the range of 0.248 per cent to 0.389 per cent. The Generalized Least Square estimates for individual industries display that out of nine industries in the sample, three industries (38, 73, and 84) have a positive and significant co-movement with transfer pricing incentives. In four industries (56, 83, 85, and 90), coefficient of Transfer Pricing Incentive (TPI) is negative but significant. In case of two industries (39 and 82), TPI coefficient is negative but not significant. Positive and significant coefficients of TPI predict that one per cent reduction in corporate tax rates in the home country would cause multinational corporations with affiliated transactions to increase reported transfer prices by 1.20 per cent in ‘Miscellaneous Chemical Products’ Industry (Industry 38), 0.175 per cent in the ‘Articles of Iron or Steel’ Industry (Industry 73) and 0.908 per cent in �Nuclear Reactors, Boilers, Machinery and Mechanical Appliances; Parts thereof' Industry (Industry 84). In industries where coefficient of TPI is negative and significant, MNCs would like to shift the taxable income of their affilates to the host country by decreasing their reported transfer price. The government's approach should be to reduce corporate tax and tariff rates to bring them at a level comparable with countries across the world which will reduce incentives for the MNCs for shifting of income out of India and increase the tax base for tax authorities. This will also result in an increase in the tax revenue of the country.

scholarly journals Do Government Regulations Prevent Transfer Pricing Manipulations?

2011 ◽  
Vol 4 (10) ◽  
Author(s):  
Canri Chan
Keyword(s):  
Multinational Corporations ◽  
Transfer Pricing ◽  
Cash Flows ◽  
Transfer Price ◽  
Tax Rates ◽  
Performance Measurements ◽  
Government Regulations ◽  
Transfer Prices ◽  
Profit Performance ◽  
Efficient Allocations

This study investigated the effects of government regulations and incentives on the setting of transfer prices. I found significant main effects of both variables on transfer price choices. Transfer pricing is important, particularly for Multinational Corporations (MNCs), because of increased trends toward globalization of business activities and, simultaneously, decentralization. These trends have led to increased pressures for sound internal pricing systems, specifically transfer pricing, in order for organizations to ensure optimal and efficient allocations of organization resources and to provide profit performance measurements (Tang 1992). It has generally been recognized in the literature that in order to maximize after tax cash flows, MNCs shift profits from high to low tax jurisdictions. Governments in some countries, particularly those with high tax rates, are greatly concerned as to whether or not companies attempt to avoid tax liabilities via transfer pricing manipulation, specifically in terms of trying to shift profits to lower tax jurisdictions, and have enacted laws to limit transfer price choice.

scholarly journals Transfer Pricing As A Vehicle In Corporate Tax Avoidance

2016 ◽  
Vol 33 (1) ◽  
pp. 9-16 ◽  
Author(s):  
Joel Barker ◽  
Kwadwo Asare ◽  
Sharon Brickman
Keyword(s):  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
Internal Revenue ◽  
Tax Reduction ◽  
Arm’S Length Principle ◽  
Corporate Tax Rates ◽  
Foreign Affiliates ◽  
Regulatory Bodies

Using transfer pricing, U.S. Corporations are able to transfer revenues to foreign affiliates with a lower corporate tax rates.  The Internal Revenue Code requires intercompany transactions to comply with the “Arm’s Length Principle” in order to prevent tax avoidance.   We describe and use elaborate examples to explain how US companies exploit flexibility in the tax code to employ transfer pricing and related tax reduction and avoidance methods. We discuss recent responses by regulatory bodies.

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

2020 ◽  
Vol 102 (4) ◽  
pp. 766-778 ◽  
Author(s):  
Li Liu ◽  
Tim Schmidt-Eisenlohr ◽  
Dongxian Guo
Keyword(s):  
United Kingdom ◽  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
The United Kingdom ◽  
Tax Returns ◽  
Medium Level ◽  
Transfer Prices

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.

Can tax competition boost demand? Causes and consequences of the global race to the bottom in corporate tax rates

2020 ◽  
Vol 8 (4) ◽  
pp. 512-535
Author(s):  
Ryan Woodgate
Keyword(s):  
Tax Competition ◽  
Multinational Enterprises ◽  
Corporate Taxes ◽  
Tax Rates ◽  
Corporate Tax ◽  
Coordination Problem ◽  
Race To The Bottom ◽  
Corporate Tax Rates ◽  
Negative Effect ◽  
Do So

Corporate tax rates have been consistently falling around the world for decades now. This paper aims to explain the causes and consequences of this ‘global race to the bottom’. In particular, the author wishes to test the hypothesis that this race to the bottom is driven by demand-boosting corporate tax competition, where, contrary to traditional Kaleckian theory, lower corporate taxes may positively affect demand through increased investment due to multinational enterprises (MNEs) that seek higher net profits through (re)locating in low-tax jurisdictions. In order to do so, the author builds a general theory of the effect of average effective corporate tax rates (AECTRs) on MNE location. This theory is used to justify the addition of a tax-sensitive foreign direct investment channel in the investment function of a canonical Kaleckian model. As a result, this paper determines the conditions under which a country may be ‘tax-competition-led’, where lowering AECTRs increases demand through increased MNE investment and in spite of the negative effect on government expenditure given a balanced budget. The findings of this paper are that it is possible for an economy to be tax-competition-led, though it is unlikely in many cases given the existence of a coordination problem that lessens or nullifies the effect of lowering AECTRs when many countries do so simultaneously. The author refers to this problem as the ‘paradox of tax competition’, since, like other fallacies of composition commonly identified in Post-Keynesian thought, this is a phenomenon where the benefits of one country acting alone are reduced or eliminated if other countries act the same way at the same time. Based on this model, crude but nonetheless informative estimates are given that indicate that the race to the bottom has had a negative effect on demand in the vast majority of OECD countries. In this sense, the author finds that the persistence of policymakers to continue to compete on corporate taxes ‘imprudent’. Model-consistent policy recommendations are offered, chief among which are tax coordination or, failing that, technical changes in how individual countries collect corporation tax.

scholarly journals Trade openness and corporate tax rates determine FDI in Pakistan: a Cointegration-ECM analysis

2013 ◽  
Vol 01 (01) ◽  
pp. 37-43
Author(s):  
Masood Shoukat Malik ◽  
Anwar F Chishti
Keyword(s):  
Trade Openness ◽  
Future Research ◽  
Foreign Direct Investments ◽  
Tax Rates ◽  
Corporate Tax ◽  
Policy Makers ◽  
Long Run ◽  
Corporate Tax Rates ◽  
Short Run ◽  
Relationship Of

A number of tries helped estimate a regression model, specifying short run and long run relationship between foreign direct investments (FDIs) and its two major determinants, namely trade openness and corporate tax rates in Pakistan. The estimated model, and both its Cointegration and ECM components, brings on surface certain important implications,for all major stakeholders. The public sector policy makers need to take note of the fact that foreign direct investment has been found being significantly affected positively by trade openness and negatively by corporate tax rates. So, efforts to enhance trade openness need to be encouraged. Similarly, the Federal Board of Revenue officials responsible for taxation policies in the country, should be aware of the fact that rates of corporate tax negatively and significantly affect FDIs in Pakistan; hence they should take this fact in to account while framing taxation policies and determining rates of taxes. The researchers interested in the topic for future research are urged to carry out research on optimizing relationship of tax rates and FDIs,for determining and guantifying the exact levels of relationship between the two variables.

Transocean and the History of Tax Inversions

2018 ◽  
Vol 34 (1) ◽  
pp. 1-12
Author(s):  
Susan M. Albring ◽  
Randal J. Elder ◽  
Mitchell A. Franklin
Keyword(s):  
Multinational Corporations ◽  
Economic Impacts ◽  
Income Taxes ◽  
Tax Rates ◽  
Corporate Tax ◽  
Corporate Income Taxes ◽  
History Of ◽  
Jobs Act ◽  
The U.S ◽  
Over Time

ABSTRACT The first tax inversion in 1983 was followed by small waves of subsequent inversion activity, including two inversions completed by Transocean. Significant media and political attention focused on transactions made by U.S. multinational corporations that were primarily designed to reduce U.S. corporate income taxes. As a result, the U.S. government took several actions to limit inversion activity. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly lowered U.S. corporate tax rates and one expected impact of TCJA is a reduction of inversion activity. Students use the Transocean inversions to understand the reasons why companies complete a tax inversion and how the U.S. tax code affects inversion activity. Students also learn about the structure of inversion transactions and how they have changed over time as the U.S. government attempted to limit them. Students also assess the tax and economic impacts of inversion transactions to evaluate tax policy.

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