Working Paper Series, Department of Economics, Copenhagen Business School
Søren Bo Nielsen, Pascalis Raimondos-Møller and Guttorm Schjederup
FORMULA APPORTIONMENT AND TRANSFER PRICING UNDER OLIGOPOLISTIC COMPETITION
Abstract: This paper demonstrates that under conditions of imperfect
(oligopolistic) competition, a transition from separate accounting (SA) to
formula apportionment (FA) does not eliminate the problem of profit
shifting via transfer pricing. In particular, if affiliates of a
multination firm face oligopolistic competition, it is beneficial for the
multinational to manipulate transfer prices for tax-saving as well as
strategic reasons under both FA and SA. The analysis shows that a switch
from SA rules to FA rules may actually strengthen profit shifting
activities by multinationals.
Keywords: Formula apportionment; Transfer pricing; Oligopolistic competition; (follow links to similar papers)
JEL-Codes: D43; (follow links to similar papers)
21 pages, October 1, 2000
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