Scandinavian Working Papers in Business Administration
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2025/18: Transfer Pricing and Investment – How OECD Transfer Pricing Rules Affect Investment Decisions
Søren Bo Nielsen (), Dirk Schindler () and Guttorm Schjelderup ()
Additional contact information
Søren Bo Nielsen: Dept. of Economics, Copenhagen Business School, Postal: Copenhagen Business School , Department of Economics, Denmark
Dirk Schindler: Erasmus School of Economics, Erasmus University Rotterdam, Postal: Erasmus University Rotterdam , Erasmus School of Economics, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands
Guttorm Schjelderup: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Abstract: We study how the OECD transfer pricing guidelines aimed at curbing tax-motivated transfer pricing practices affect investment incentives. Our theoretical model integrates the different OECD’s transfer pricing methods into the tax planning cost function of an MNC to evaluate how the choice of transfer price and quantity produced determine the amount of profit shifted. When the transfer pricing method used emphasizes the choice of transfer price over the choice of the quantity of the intermediate good, tax-motivated transfer pricing has positive investment effects. However, when the transfer pricing method treats profit shifting by price and quantity symmetrically, tax-motivated transfer pricing does not impact investment on the intensive margin. Our study has potential policy implications and also produces suggestions for empirical research on transfer pricing and investment.
Keywords: Multinational corporations; corporate tax avoidance; transfer pricing; OECD transfer pricing rules; investment effects
Language: English
51 pages, May 22, 2025
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