Logo Logo
Help
Contact
Switch Language to German
Mukunoki, Hiroshi; Okoshi, Hirofumi (6. April 2020): Tariff Elimination versus Tax Avoidance: Free Trade Agreements and Transfer Pricing. Discussion Papers in Economics 2020-1
[img]
Preview
Creative Commons Attribution - Submitted Version 264kB

Abstract

prises (MNEs) manipulate their transfer prices to avoid a high corporate tax. ROO of a free trade agreement (FTA) require exporters to identify the origin of exports to be eligible for a preferential tariff rate. The results suggest that a value-added criterion of ROO restricts MNEs’ abusive transfer pricing. Interestingly, an FTA with ROO can induce MNEs to shift profits from a low-tax country to a high-tax country. Because ROO augment tax revenues inside FTA countries, they can transform a welfare-reducing FTA into a welfare-improving FTA.