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Do Tax Information Exchange Agreements Curb Transfer Pricing-Induced Tax Avoidance?
| Content Provider | Scilit |
|---|---|
| Author | Diller, Markus Lorenz, Johannes |
| Copyright Year | 2017 |
| Description | Journal: SSRN Electronic Journal This paper aims at analyzing the impact of bilateral Tax Information Exchange Agreements on multinational tax avoidance. We propose a game theoretical model where a multinational company with divisions in two countries and the respective tax authorities interact with each other. Prior to an audit the functional profile of the divisions is unknown to the tax authorities. In equilibrium, tax avoidance emerges in both countries. It turns out that the audit pressure is highest for firms with a hybrid functional profile, dampening their production and reducing their after-tax profit.We find that introducing a bilateral Tax Information Exchange Agreement reduces tax avoidance by aggressive transfer pricing in the high-tax (“domestic”) country and precludes tax avoidance in the low-tax (“foreign”) country. The volume of production increases. The foreign tax authority discontinues its audit activities, while the domestic tax authority audits less often at least if the foreign division is a toll manufacturer (“routine function”). The expected net tax revenues increase in the foreign country, however, they may decrease in the domestic country. |
| Related Links | https://www.econstor.eu/bitstream/10419/179478/1/1023393468.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2856261 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.2856261 |
| Journal | SSRN Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2017-06-01 |
| Access Restriction | Open |
| Subject Keyword | Journal: SSRN Electronic Journal |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
