Drawing on administrative tax return and trade data linked with employment records, this paper looks into how multinational enterprises (MNEs) in Norway responded to an increase in transfer pricing (TP) strictness. We analyze the amount of money MNEs spent on tax compliance - both on external consultants and in-house lawyers and accountants - after the reform. Difference-in-differences event study designs show that the regulation significantly impacted tax payments, reported profits, and spending on tax advisors. On average, MNEs spent an extra NOK 4.64 million on tax compliance services in the subsequent year. This includes a 12.5% increase in spending on consultants and a 150% increase in spending on in-house advisors. We also found evidence that stricter TP regulations in countries where affiliates locate raised the demand for tax advisors for firms in Norway.

This paper studies how firms manipulate their transfer prices to shift profit from high tax countries to low tax countries. Using detailed transaction-destination level firm data for years 2013-2019, I find evidence of Finnish multinational enterprises underpricing their exports to low tax destinations. By exploiting variation in corporate income tax rate differences and differences in the ownership of affiliates, I apply a triple difference estimation strategy. I find that a 1 percentage point increase in tax rate difference decreases export unit value by 1.2% among multinational firms exporting to low tax countries. My results suggest firms use transfer pricing as a complement channel, as firms more prone to other profit shifting mechanisms also underprice their exports more. Also, I provide evidence that transfer mispricing is concentrated in exports destined to countries where the multinational’s affiliate has a higher level of economic activity.

The development of digital technologies allows multinational enterprises (MNEs) to operate online platforms and supply network products for their platform. Although improving their platform by investing in online technologies benefits consumers and service providers in platforms, it also helps platform MNEs manipulate transfer prices and save taxes because new technology makes applying the arm’s length principle difficult. This study investigates the effects of tightening transfer pricing regulations in two-sided markets. We show that stricter transfer pricing regulations reduce an MNE’s tax avoidance gain from investing in online technologies and an investment level. Besides that, one of the main findings is that a tighter transfer pricing regulation harms a high-tax country when transfer pricing regulations are loosely enforced, and the marginal impacts of online technology investments on network externality are larger than that on profit shifting. This finding provides an important policy implication for international taxation under the digital economy.