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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Examining the Impact of Transfer Pricing on Tax Avoidance and Capital Retention |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 87 |
| Date | 2016 |
| Abstract Text | Transfer pricing is, today, a priority matter to the OECD and tax administrators across the globe but as well a big business to accounting and consulting companies. Its use can radically alter the tax burden of multinational enterprises and is, as a consequence, more than just documents requirements. Recently, Apple, Google, Starbucks, Adobe, Microsoft and other multinationals enterprises have made headlines because of tax avoidance. These companies are using legal complex tax planning schemes in order to minimize their global tax burden, and a key element of these schemes involves transfer pricing. Each one of these tax avoidance disputes often end up in income adjustments of millions to upward billions of euros. Across this Thesis, first we examined the origins of transfer pricing and the current techniques tax administrators have in order to value them. It has been showed that as a consequence of changes in the global production process – among other reasons – it is increasingly complex to align transfer pricing to value creation. We identified three direct impacts of profit shifting through the use of transfer pricing: 1) MNEs have a tax competitive advantage against SMEs, 2) jurisdictions might enter into harmful tax competition to attract / maintain profit reporting inside their borders and 3) the tax system’s integrity and its performance will be hurt. Additionally, the research shows that developing countries’ economies are very dependent on MNEs and, at the same time, have little power of control on transfer prices and other tax avoidance schemes. As a consequence we have found that transfer mispricing greatly impacts the overpricing level of goods being exported by developing economies across the globe. The fiscal loss caused by profit shifting from developing countries is – according to different organizations – between $70 and $180 billion annually. We also covered several empirical studies aiming to numerically prove the existence of relationships related to transfer pricing. We have examined three clear relations: 1) MNEs will manipulate their intra-group transfer prices in response to change in corporate tax rates, 2) MNEs will change the location of their intangibles holding in accordance with level of corporate taxes (inverse relationship) and 3) MNEs will adjust their reported profits to the level of corporate tax rates among their sub- entities jurisdictions. We then considered current and alternative solutions to counter the abusive use of transfer pricing. We examine the Actions 12 and 13 of the OECD’s Action Plan. It aims to increase transparency in tax planning schemes and transfer pricing documents by creating mandatory disclosure rules. Additionally, we consider the implementation of Formulary Apportionment / Unitary Taxation with a focus on the new European Commission’s project, the Common Consolidated Corporate Tax Base. |
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