Correlation between transfer pricing strictness index and foreign investment

Khayala Jafarova

Master's thesis

Abstract:

The issue of transfer pricing has become a major topic of discussion in recent years, particularly in relation to multinational corporations. With the rise of globalization, multinational corporations have been able to take advantage of various tax regulations in different countries, leading to concerns about fairness and equity in the international tax system. This master thesis aims to examine the correlation between transfer pricing strictness index and foreign investment, with a focus on selected European countries. An OLS regression is conducted using gretl software. This study is important because transfer pricing, the tax bases of countries, the movement of income and wealth across national borders, and the tax obligations placed on multinational corporations are all factors that need to be taken into account. The revenue and costs of related firms that operate under separate tax systems, and therefore their profits, and consequently the tax base of the country, are eroded to a large extent as a result of transfer pricing. Thus, both tax administrations and individuals can benefit from a better understanding of transfer pricing. The findings of this study could potentially help policymakers develop better strategies to regulate multinational corporations and ensure that the international tax system is fair and equitable for all countries.

Abstract:

The issue of transfer pricing has become a major topic of discussion in recent years, particularly in relation to multinational corporations. With the rise of globalization, multinational corporations have been able to take advantage of various tax regulations in different countries, leading to concerns about fairness and equity in the international tax system. This master thesis aims to examine the correlation between transfer pricing strictness index and foreign investment, with a focus on selected European countries. An OLS regression is conducted using gretl software. This study is important because transfer pricing, the tax bases of countries, the movement of income and wealth across national borders, and the tax obligations placed on multinational corporations are all factors that need to be taken into account. The revenue and costs of related firms that operate under separate tax systems, and therefore their profits, and consequently the tax base of the country, are eroded to a large extent as a result of transfer pricing. Thus, both tax administrations and individuals can benefit from a better understanding of transfer pricing. The findings of this study could potentially help policymakers develop better strategies to regulate multinational corporations and ensure that the international tax system is fair and equitable for all countries.

Keywords

Strictness index, Transfer pricing, FDI, MNCs

Keywords

Strictness index, MNCs, Transfer pricing, FDI

Language used: English

Date on which the thesis was submitted / produced: 18. 5. 2023

Thesis defence

• Date of defence: 16. 6. 2023
• Supervisor: Tomáš Krabec
• Reader: Barbora Rýdlová

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting