Conference Agenda

This paper extends the forward-looking effective tax rates of Devereux and Griffith (1998) to model targeted tax reforms and anti-avoidance measures. To implement tax reforms or tax measures which depend on firm-characteristics the effective tax rates are calculated using firm characteristics

like in Egger et al. (2009). The propsed extensions aim to model interest barriers, thin capitalisation and CFC rules as well as considering loss consoldiation and loss carry forward. Comparing the results to the standard bilateral effective tax rates shows that considering firm-variation can substantially alter the ranking of the bilateral tax burden.

This paper investigates how multinational enterprises (MNEs) strategically reallocate risk among their affiliates in response to the introduction of transfer pricing regulations, using the implementation of transfer pricing documentation rules in France in 2010 as a quasi-natural experiment. Using administrative data, we examine the shifting of several risk types outlined in the OECD Transfer Pricing Guidelines, including market risk, credit risk, inventory risk, and R&D risk. Our analyses suggest that affected MNEs allocate less market and credit risk to French affiliates after the reform. As risk allocation goes hand in hand with shifting of real activity, we subsequently assess the impact of the French transfer pricing reform on MNEs’ investment and employment decisions. Our study provides insights into the effectiveness of transfer pricing regulations and sheds light on how MNEs adapt their corporate structures to facilitate profit shifting through transfer pricing mechanisms.

Using a stacked difference-in-differences design, we look into the investment, trade and profit shifting responses of MNEs on DDT arbitration clauses. Based on bilateral data on FDI and trade flows and MNE financials, we find that the introduction of an arbitration clause in existing DTTs has, on average, no significant impact on FDI across countries. In contrast, the effect of the introduction of an arbitration clause on bilateral service flows is positive and significant. The value of bilateral flows for services is even higher if the tax rate differential comes with a tax benefit or reduces a tax disadvantage. Both indicates profit shifting by way of transfer pricing. Profit shifting is corroborated by the fact that the profitability difference between service provider and recipient increases for services to affiliates that are subject to a lower tax burden than the provider.