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Journal article

The arm’s length principle and distortions to multinational firm organisation

Abstract:

To prevent profit shifting by manipulation of transfer prices, tax authorities typically apply the arm’s length principle in corporate taxation and use comparable market prices to ‘correctly’ assess the value of intracompany trade and royalty income of multinationals. We develop a model of heterogeneous firms subject to financing frictions and offshoring of intermediate inputs. We find that arm’s length prices systematically differ from independent party prices. Application of the principle d...

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Authors


Michael Devereux More by this author
Christian Keuschnigg More by this author
Publication date:
2011
URN:
uuid:3607744f-e540-4336-bac8-04e758b515e0
Local pid:
oai:eureka.sbs.ox.ac.uk:1340

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