Asset specificity, international profit shifting, and investment decisions

Resource Information

The work Asset specificity, international profit shifting, and investment decisions represents a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. This resource is a combination of several types including: Work, Language Material, Continuing Resources.

Label

Asset specificity, international profit shifting, and investment decisions

Creator

• Overesch, M
• Schreiber, U

Subject

• foreign investment
• R&D
• transfer pricing
• profit shifting
• corporate income tax

Language

eng

Summary

Multinationals have an incentive to shift taxable profits to low tax countries by manipulating the transfer prices of intragroup transactions. Transfer prices must conform to the arm's length standard. However, market prices are not available if transferred assets or performed services are firm-specific. In these cases, companies have considerable leeway in assessing transfer prices. Research and development (R&D) intensity is used as a proxy for firm-specific assets and services that are associated with enhanced opportunities to shift profits. An empirical analysis based on firm-level data on German outbound foreign direct investment during the period from 1996 until 2005 reveals that the tax response of intragroup transactions depends on the R&D intensity of multinational companies. The impact of taxes on investments decreases with an increasing R&D intensity, with the result that the local tax rate becomes less important for investment decisions of R&D intensive multinational companies

Citation source

In: Zeitschrift für Betriebswirtschaft. - (2010),

Geographic coverage

International

Language note

English