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Contribution Details

Type Master Thesis
Scope Discipline-based scholarship
Title Profit Shifting of Multinationals; tax motivated income shifting and the role of transfer pricing regulation
Organization Unit
  • Mahmud El Saghir
  • Jacqueline Haverals
  • Michel Habib
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 73
Date December 2017
Abstract Text The current debate on profit shifting and tax planning structures of multinational enterprises (MNEs) has reached new heights and has caught attention from media, governments, and the general public. This thesis gives a comprehensive overview on profit shifting techniques of MNEs. To illustrate the theoretical concepts, a practical example based on Google's tax planning structure is discussed. Further, the thesis provides insights into the current Base Erosion and Profit Shifting (BEPS) project initiated by the Organization for Economic Co-operation and Development (OECD), focusing on transfer pricing legislation and the arm's length principle. In addition, an empirical analysis is performed observing 8,726 affiliates across Europe from 2007 to 2016. The analysis provides evidence for profit shifting activities of MNEs. Furthermore, the estimation model includes an interaction term to measure the effectiveness of transfer pricing legislation. The results show a limiting effect of both, transfer pricing documentation requirements and specific transfer pricing penalties. The documentation requirement interaction term is not significant. However, the penalty coefficient indicates a reduction of around 35% when specific transfer pricing penalties are introduced and is significant at the 5% level. This is considerably important to understand the limiting effect on shifting activities. Nonetheless, further research is needed to monitor the effectiveness of the OECD Action Plan and the prevention of BEPS, especially with regards to developing countries.
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