October 2017

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

Li Liu, Tim Schmidt-Eisenlohr, and Dongxian Guo


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 uncovers three new findings on tax-motivated transfer mispricing in real goods. First, transfer mispricing increases substantially when taxation of foreign profits changes from a worldwide to a territorial approach in the UK, with multinationals shifting more profits into low-tax jurisdictions. Second, transfer mispricing increases with a firm's R&D intensity. Third, tax-motivated transfer mispricing is concentrated in countries that are not tax havens and have low-to-medium-level corporate tax rates.

Keywords: transfer pricing, corporate taxation avoidance, multinational firms

DOI: https://doi.org/10.17016/IFDP.2017.1214

PDF: Full Paper

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Last Update: January 09, 2020