Large multinational companies are regularly suspected of using transfer pricing of intangibles
to shift profits from high- to low-tax jurisdictions. We study the optimal transfer
prices while endogenizing the location choice of intangibles and considering spillovers. In
line with the initial intuition, we find that multinationals locate their intangibles in low-tax
jurisdictions and deploy royalty flows to minimize tax payments. However, if multinationals
face a trade-off between tax minimization and efficient spillover internalization, the
so-called "home bias" might occur. Then, for a large spillover, the intangible is optimally
located in the high-tax domestic country. This leads to less severe investment distortions
because the spillover is internalized. In addition, the model predicts that curtailing profit
shifting possibilities can either harm or facilitate multinationals' overall investments. This
depends heavily on unobservable factors such as the underlying accounting system. Therefore,
our analysis highlights challenges for the anti-avoidance legislation of governments. / Series: WU International Taxation Research Paper Series
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:6784 |
| Date | 12 1900 |
| Creators | Reineke, Rebecca, Weiskirchner-Merten, Katrin |
| Publisher | WU Vienna University of Economics and Business, Universität Wien |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Paper, NonPeerReviewed |
| Format | application/pdf |
| Relation | http://ssrn.com/abstract=3314732, http://epub.wu.ac.at/6784/ |
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