Oct, 2021
Tariff elimination versus tax avoidance: Free trade agreements and transfer pricing
International Tax and Public Finance
- ,
- 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
- ID information
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- DOI : 10.1007/s10797-021-09689-8
- ISSN : 0927-5940
- eISSN : 1573-6970