IMF Working Papers

Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing

By Sebastian Beer, Sebastien Leduc, Jan Loeprick

September 23, 2022

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Sebastian Beer, Sebastien Leduc, and Jan Loeprick. Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing, (USA: International Monetary Fund, 2022) accessed December 25, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Simplifying tax policy comes with costs and benefits. This paper explores simplification options for the taxation of MNEs, an area where administrative and compliance costs of the current rules are large. Simplified approaches seek to reduce these costs by relying on an approximation of the true tax base, potentially distorting resource allocation. We examine the efficiency cost of transfer pricing simplification theoretically and empirically. Using a sample of 300,000 firms located in 22 countries, we estimate that common transfer pricing practices reduce efficiency between 0.25 and 2.2 percent of total factor productivity across sectors. Focusing on the manufacturing sector, we then observe that simplification more than doubles sectoral inefficiency on average. However, large differences exist, with moderate efficiency costs in several sectors.

Keywords: Efficiency Costs, Taxation of Multinational Enterprises, Transfer Pricing Simplification

Publication Details

  • Pages:

    27

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/193

  • Stock No:

    WPIEA2022193

  • ISBN:

    9798400219221

  • ISSN:

    1018-5941