Logo Logo
Switch Language to German

Mukunoki, Hiroshi and Okoshi, Hirofumi (6. April 2020): Tariff Elimination versus Tax Avoidance: Free Trade Agreements and Transfer Pricing. Discussion Papers in Economics 2020-1 [PDF, 264kB]


This study explores the new roles of rules of origin (ROO) when multinational enterprises (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.

Actions (login required)

View Item View Item