On the effects of anti-profit shifting regulations: A developing country perspective

Laudage Teles, Sabine; Riedel, Nadine; Strohmaier, Kristina


Abstract
Multinational profit shifting is a major concern for low and middle income countries (LMICs). Many have enacted anti-profit shifting rules in order to constrain this type of tax avoidance behavior. Yet, not much is known on the rules’ effects. We offer a first empirical assessment, providing two pieces of evidence: First, we draw on macro data for more than 120 LMICs for a 30-year-period and show that the introduction of transfer pricing (TP) rules – provisions that constrain profit shifting from mis-pricing of intra-firm trade – significantly increased corporate tax revenue collection in LMICs. Second, we use rich tax administrative and trade data for South Africa to provide “first-stage” evidence for firms’ behavioral response to stricter TP provisions: we establish that a tightening of South African TP rules reduced intra-firm trade mis-pricing and increased taxable income reporting of affected multinational firms.

Keywords
Corporate taxation; International taxation; Transfer pricing laws



Publication type
Research article (journal)

Peer reviewed
Yes

Publication status
Published

Year
2024

Journal
Journal of Public Economics

Volume
235

Publisher
Elsevier B.V.

Language
English

ISSN
0047-2727

DOI

Full text