Managerial Autonomy and Tax Compliance: An Empirical Study on International Transfer Pricing

2006 ◽  
Vol 28 (2) ◽  
pp. 1-22 ◽  
Author(s):  
K. Hung Chan ◽  
Agnes W. Y. Lo ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Foreign Investment ◽  
Transfer Pricing ◽  
Tax Compliance ◽  
Foreign Subsidiaries ◽  
Profit Shifting ◽  
Transfer Prices ◽  
Tax Audit ◽  
Foreign Investment Enterprises ◽  
The Impact ◽  
Parent Companies

This paper examines the impact of managerial autonomy on tax compliance in an international transfer pricing context. Specifically, we study whether foreign subsidiaries' autonomy in making pricing and sourcing decisions on intrafirm transfers affect their profit shifting through international transfer pricing. We measure transfer pricing noncompliance in terms of tax audit adjustments made by tax authorities. Based on a sample of 163 transfer pricing audits on foreign investment enterprises (FIEs) in China, we find that tax audit adjustments for FIEs that have autonomy in setting transfer prices or sourcing from outsiders are smaller than those that have their transfer transactions dictated by parent companies.

scholarly journals Substitution across profit shifting methods and the impact on thin capitalization rules

2021 ◽  
Author(s):  
Gideon Goerdt ◽  
Wolfgang Eggert
Keyword(s):  
Multinational Firms ◽  
Transfer Pricing ◽  
Multinational Firm ◽  
Profit Shifting ◽  
Goods And Services ◽  
Internal Goods ◽  
Transfer Prices ◽  
Debt Shifting ◽  
The Impact ◽  
Thin Capitalization

AbstractThin capitalization rules limit firms’ ability to deduct internal interest payments from taxable income, thereby restricting debt shifting activities of multinational firms. Since multinational firms can limit their tax liability in several ways, regulation of debt shifting may have an impact on other profit shifting methods. We therefore provide a model in which a multinational firm can shift profits out of a host country by issuing internal debt from an entity located in a tax haven and by manipulating transfer prices on internal goods and services. The focus of this paper is the analysis of regulatory incentives, $$(i)$$ ( i ) if a multinational firm treats debt shifting and transfer pricing as substitutes or $$(ii)$$ ( i i ) if the methods are not directly connected. The results provide a new aspect for why hybrid thin capitalization rules are used. Our discussion in this paper explains why hybrid rules can result in improvements in welfare if multinational firms treat methods of profit shifting as substitutes.

Analyzing Transfer Prices Impact at European Level on Romanian Companies

2020 ◽  
Vol 26 (2) ◽  
pp. 52-57
Author(s):  
Mihaela Paraschiva Luca ◽  
Cătălin Florin Zeti ◽  
Ioan Cosmin Pițu ◽  
Bianca Cristina Ciocănea
Keyword(s):  
Data Analysis ◽  
Scientific Literature ◽  
Transfer Pricing ◽  
Multinational Companies ◽  
European Level ◽  
Profit Shifting ◽  
Tax Base ◽  
Fiscal Reforms ◽  
Transfer Prices ◽  
The Impact

AbstractAt present, due to the current project of the Organization for Economic Cooperation and Development, with regard to tax base erosion and profit shifting (OECD BEPS), as well as with regard to the impact of global fiscal reforms in development, in transfer pricing, fiscal authorities are the ones in control in relationship with companies. Within this context, the present study presents and analyses the influences of the transfer pricing current environment at European level in the case of Romanian companies. Realizing a detailed and deep documentation of the existing scientific literature in this field and using a comparative data analysis lead to the conclusion that the diminishing in impact of these influences may be accomplished by the finding of new solutions by multinational companies through which they should manage accordingly the associated risk of transfer pricing and prevent the eventual misunderstandings with regard to fiscal authorities.

The impact of countries' transfer pricing rules on profit shifting

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alex A.T. Rathke ◽  
Amaury José Rezende ◽  
Christoph Watrin
Keyword(s):  
Transfer Pricing ◽  
Tax Avoidance ◽  
Profit Shifting ◽  
Content Type ◽  
Tax Rate ◽  
Pricing Rules ◽  
Transfer Prices ◽  
Extensive Information ◽  
Import And Export ◽  
The Impact

PurposeThis study investigates the impact of different transfer pricing rules on tax-induced profit shifting. Existing studies create different enforcement rankings of countries based on specific transfer pricing provisions on the assumption that larger penalties and more extensive information requirements imply higher tax enforcement. This assumption carries limitations related to the impact of transfer pricing rules in different countries and to the interaction of different tax rules. Instead, the authors propose a nonordered segregation of groups of countries with different transfer pricing rules, and they empirically investigate the impact of these transfer pricing rules on the profit-shifting behavior of firms.Design/methodology/approachThe authors apply the hierarchical clustering method to analyze 57 observable quantitative and qualitative characteristics of transfer pricing rules of each country. This approach allows the creation of groups of countries based on a comprehensive set of regulatory characteristics, to investigate evidence of profit shifting for each of these separate groups. Profit-shifting behavior is measured by the variation in the volume of import and export transactions between local firms and related parties located in other countries.FindingsThe results indicate that firms have a higher volume of intrafirm transactions with related parties located in countries with a lower tax rate. This result is consistent with the profit-shifting hypothesis. Moreover, the results show that relevant differences in transfer pricing rules across countries produce different effects on the volume of intrafirm transactions. The authors observe that the existence of domestic transfer pricing rules that override the OECD Transfer Pricing Guidelines may inhibit profit shifting. In addition, the results suggest that the OECD guidelines may facilitate profit shifting. Overall, it is observed that some transfer pricing rules may be more effective than others in curbing profit shifting and that firms are still able to manipulate transfer prices under some tax rules.Research limitations/implications(1) The authors focus on the Brazilian context, which provides a suitable set of profit-shifting incentives for the analysis, since it combines an extreme corporate tax rate, a highly complex tax system, and a unique set of transfer pricing rules. (2) Profit-shifting behavior is captured by the volume of intrafirm transactions. The authors would prefer to observe the transfer price directly; however, this information is not disclosed by firms, for it may represent a limitation to the investigation. Nonetheless, theory shows that the profit-shifting behavior is reflected by the manipulation of both transfer prices and intra-firm outputs.Practical implicationsThe authors find that the volume of intrafirm transactions may decrease or increase, depending on the transfer pricing system of the foreign country (including the tax-differential effect). It suggests that some transfer pricing rules are more effective than others in curtailing the profit-shifting behavior and that firms are still able to find vulnerabilities in current rules and take advantage of them in deploying a profit-shifting strategy.Social implicationsResults provide knowledge about how key differences on transfer pricing rules across countries influence the profit-shifting behavior. The results of the study may have valuable application in solving regulatory mismatches, to eliminate blind spots in transfer pricing rules and thus to contribute to the current review of OECD guidelines and to the global tax reset movement.Originality/valueRecent studies suggest that if tax-avoidance incentives are somewhat weak, it becomes difficult to observe the shifting behavior of firms. The puzzle is to check whether profit shifting is nonexistent under weak incentives or whether this is a matter of methodological limitations. The authors’ analysis is applied to a complex tax background with strong profit-shifting incentives; thus, it allows the authors to obtain robust evidences of the shifting behavior and the effect of different transfer pricing rules.

Moderating role of patriotism on sales tax compliance among Jordanian SMEs

2020 ◽  
Vol 13 (3) ◽  
pp. 389-415 ◽  
Author(s):  
Ahmad Farhan Alshira'h ◽  
Hijattulah Abdul-Jabbar
Keyword(s):  
Tax Compliance ◽  
Arab Countries ◽  
Moderating Effect ◽  
Theory And Practice ◽  
Sales Tax ◽  
Deterrence Theory ◽  
Content Type ◽  
Tax Rate ◽  
Tax Audit ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of tax audit, tax rate and tax penalty on sales tax compliance and examine the moderating effect of patriotism on the associations between tax audit, tax rate and tax penalty with sales tax compliance among Jordanian manufacturing small- and medium-sized enterprises (SMEs). Design/methodology/approach In this study, 660 questionnaires were distributed by using systematic random sampling to manufacturing SMEs in Jordan, after which a total of 385 useable questionnaires were deemed suitable for analysis. Partial least squares structural equation modelling (PLS-SEM) was used to validate the measurement model and structural model and the predictive relevance of the study’s model. Findings The findings showed that tax audit and tax penalty were positively associated with the level of sales tax compliance, whereas tax rate was insignificantly associated with sales tax compliance. They also demonstrated the moderating significant effect of patriotism on the relationship between tax penalty, tax audit and tax rate with sales tax compliance. Research limitations/implications Tax authorities and policymakers in developing majority societies in developing countries and in other Arab countries, especially in Jordan may use the results to focus their interest on the formulation of policies founded on the outcomes of the study to strengthen eligible SMEs to comply to further boost their sales collections. Originality/value This study extends the deterrence theory in the context of sales tax compliance by proposing the moderating effect of patriotism in the deterrence theory on sales tax compliance among SMEs. Moreover, the suitability for the use of PLS-SEM as a statistical tool in investigating the extended deterrence theory with patriotism as a moderating variable as well as its implications for theory and practice was also discussed.

Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile

2019 ◽  
Vol 109 ◽  
pp. 500-505
Author(s):  
Sebastián Bustos ◽  
Dina Pomeranz ◽  
José Vila-Belda ◽  
Gabriel Zucman
Keyword(s):  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Compliance ◽  
Tax Rates ◽  
Profit Shifting ◽  
Effective Tax Rates ◽  
Arm’S Length Principle ◽  
Debt Shifting

This paper reviews common challenges of taxing multinational firms, using Chile as a case study. We briefly describe key international tax avoidance methods: profit shifting to low-tax jurisdictions through transfer pricing and debt shifting. We discuss the prevalent policy to tax multinationals--the arm's length principle--and alternative proposals using apportionment formulas. Novel data from Chile show that multinationals make up a large share of GDP but report lower profit and effective tax rates than local firms. In 2011, Chile implemented a reform following OECD guidelines to enforce the arm's length principle. We discuss potential effects on tax collection and welfare.

scholarly journals Bearing of Tax Audit on Tax Compliance and Revenue Generation in Ekiti State

2020 ◽  
Vol 12 (1) ◽  
pp. 115
Author(s):  
Raphael Adekola DADA ◽  
Isaac Babatope TAIWO
Keyword(s):  
Tax Compliance ◽  
Internal Revenue Service ◽  
Revenue Generation ◽  
Analysis Technique ◽  
Tax Audit ◽  
Compliance Audit ◽  
Cent Level ◽  
The Government ◽  
The Impact ◽  
Structured Questionnaire

The paper examined the impact of tax audit on revenue generation in Ekiti State. The data used for this study was gathered using structured questionnaire administered to 312 staff of the Ekiti State Internal Revenue Service. A regression analysis technique was adopted, and the result revealed that certain per cent of the revenue generated in Ekiti State could be explained by the tax audit; It was also discovered that auditing access, auditing officials, an effective tax audit, non-compliance, audit fieldwork, tax audit control, and corruption affect the revenue generation by 1.188, 0.319, 0.596, 0.148, 0.157, 0.125 and 0.002 respectively; the probability value  0.00, 0.01, 0.00, 0.022 and 0.00 ˂ 0.05 showed that auditing access, auditing officials, effective tax audit and incentive were statistically significant at 5 per cent level; the probability of F-statistic value 0.000 ˂ 0.05 revealed that the model was appropriate for determining the impact of tax audit on revenue generation in Ekiti State. Thus, the study concluded that tax audit should be embraced as it maximizes the collection of revenue which enables the government to address developmental projects that will benefit its citizenry and also helps in strengthening the businesses of the taxpayer.

scholarly journals Gray Markets and Multinational Transfer Pricing

2011 ◽  
Vol 87 (2) ◽  
pp. 393-421 ◽  
Author(s):  
Romana L. Autrey ◽  
Francesco Bova
Keyword(s):  
Social Welfare ◽  
Marginal Cost ◽  
Transfer Pricing ◽  
Foreign Market ◽  
Multinational Firm ◽  
Foreign Subsidiary ◽  
Foreign Subsidiaries ◽  
Gray Market ◽  
Pricing Rules ◽  
Transfer Prices

ABSTRACT Gray markets arise when a manufacturer's products are sold outside of its authorized channels, for instance when goods designated by a multinational firm for sale in a foreign market are resold domestically. One method multinationals use to combat gray markets is to increase transfer prices to foreign subsidiaries in order to increase the gray market's cost base. We illustrate that, when a gray market competitor exists, the optimal transfer price to a foreign subsidiary exceeds marginal cost and is decreasing in the competitiveness of the domestic market. However, a multinational's discretion in setting transfer prices may be limited by mandatory arm's length transfer pricing rules. Provided gray markets exist, we characterize when mandating arm's length transfer pricing lowers domestic social welfare relative to unrestricted transfer pricing. We also demonstrate that gray markets can lead to higher domestic tax revenues, even when gray market firms do not pay taxes domestically.

scholarly journals Experimental Evidence on Transfer Pricing

2016 ◽  
Vol 50 (1) ◽  
pp. 27-48 ◽  
Author(s):  
Quoc H. Tran ◽  
Rachel T. A. Croson ◽  
Barry J. Seldon
Keyword(s):  
Transfer Pricing ◽  
Tax Rates ◽  
Optimal Transfer ◽  
Policy Interventions ◽  
Economics Experiments ◽  
Theoretical Predictions ◽  
Transfer Prices ◽  
Partial Ownership ◽  
Tariff Rates ◽  
The Impact

Abstract We use incentivized economics experiments to test both the point predictions and comparative static predictions of optimal transfer pricing models, comparing behavior under varying conditions, including wholly versus partially-owned subsidiaries and different tariff and tax rates. As predicted, we find that transfer prices are responsive to relative tax and tariff rates as well as ownership proportions. Additionally, we examine convergence and learning in this setting. While individuals do not choose optimal transfer prices, their choices converge to optimal levels with experience. This paper thus makes two important contributions. First, by comparing behavior with theoretical predictions it provides evidence of whether (and when) individuals set transfer prices optimally. Second, by comparing behavior under conditions of full and partial ownership it provides evidence on the impact of policy interventions (like regulating ownership proportions by MNEs) on tax revenues.

scholarly journals Zinsbereinigung des Eigenkapitals im internationalen Steuerwettbewerb – Eine kostengünstige Alternative zu “Thin Capitalization Rules”?

2009 ◽  
Vol 58 (1) ◽  
pp. 93-126
Author(s):  
Dominik Rumpf
Keyword(s):  
Balance Sheet ◽  
Financial Structure ◽  
Strong Impact ◽  
Negative Effects ◽  
Corporate Tax ◽  
Profit Shifting ◽  
Tax Revenues ◽  
Transfer Prices ◽  
The Impact ◽  
Thin Capitalization

Abstract This paper investigates the impact of an Allowance for Corporate Equity (ACE) on the expected tax revenues and on the international tax competition. Beginning with an analysis of the relation between the rate of return on equity and the interest rate on the capital market, this paper figures out some effects which cause surprisingly low net assets used to calculate the ACE. This yields to a strong impact on the financial structure of multicorporate enterprises although there is only a moderate decline in tax revenues. Focusing profit shifting via transfer prices, the ACE has no positive effect. Only a cut of the corporate tax rate is useful in this context. The relevance of these results is additionally affirmed by using the statistical data published by the “Deutsche Bundesbank”, the central bank of Germany, which includes an aggregated corporate balance sheet. All in all, the ACE can be seen as an alternative to the new German thin capitalization rules applied in 2008 (“Zinsschranke”). Additionally, the low tax revenue losses constitute a new advantage for the ACE as a blueprint for corporate tax reforms. This is also interesting because an ACE could reduce the negative effects on the financial structure of firms which accompanies the implementation of a low withholding tax on interests.

scholarly journals ANTECEDENT TERHADAP KEPATUHAN WAJIB PAJAK BADAN DENGAN TAX AMNESTY SEBAGAI PEMODERASI

2017 ◽  
Vol 3 (1) ◽  
pp. 49-61
Author(s):  
Ayu Komala Dewi ◽  
Syahril Djadang ◽  
Darmansyah Darmansyah
Keyword(s):  
Law Enforcement ◽  
Sampling Method ◽  
Tax Compliance ◽  
Statistical Test ◽  
Corporate Tax ◽  
Tax Amnesty ◽  
Tax Audit ◽  
Study Population ◽  
Tax Payers ◽  
The Impact

ABSTRACTThis study aims to identify and analyze the impact of tax audit and enforcement of compliance on corporate tax payers, with the tax amnesty as a moderating factor. The study population was registered corporate tax payers in KPP Pratama Depok. This research is using random sampling method with a total of 100 respondents. Data analysis was performed using Moderate Regression Analyst (MRA), which contains elements of interaction (multiplication of two or more independent multiplication) by using SPSS 22 for windows. The study used a questionnaire statement that is processed with statistical test. The results showed that the tax audit, law enforcement if it is moderated by tax amnesty has positively significant impact on tax compliance entities. Keywords: Tax Audit, Enforcement, Tax Amnesty, Tax Payer Compliance

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