Papers

Peer-reviewed Corresponding author International journal
Oct, 2021

Tariff elimination versus tax avoidance: Free trade agreements and transfer pricing

International Tax and Public Finance
  • Hiroshi Mukunoki
  • ,
  • Hirofumi Okoshi

Volume
28
Number
5
First page
1188
Last page
1210
Language
English
Publishing type
Research paper (scientific journal)
DOI
10.1007/s10797-021-09689-8
Publisher
Springer Science and Business Media LLC

<title>Abstract</title>We explore the new roles of rules of origin (ROO) when multinational enterprises (MNEs) manipulate their transfer prices to avoid a high corporate tax. The ROO under a free trade agreement (FTA) require exporters to identify the origin of exports to be eligible for a preferential tariff rate. We find that a value-added criterion of ROO restricts abusive transfer pricing by MNEs. Interestingly, an FTA with ROO can induce MNEs to shift profits from a low- to high-tax country. Because the ROO augment tax revenues inside FTA countries, they can transform a welfare-reducing FTA into a welfare-improving one.

Link information
DOI
https://doi.org/10.1007/s10797-021-09689-8
URL
https://link.springer.com/article/10.1007/s10797-021-09689-8
ID information
  • DOI : 10.1007/s10797-021-09689-8
  • ISSN : 0927-5940
  • eISSN : 1573-6970

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