Income Shifting and Transfer Pricing

Project managerJohn Christian Langli
ClientNorges forskningsråd
Client project no.
Period1.1.2002 - 31.12.2002 (ended)

Project description

Multinational corporations may maximize after tax return by shifting taxable income from high-tax countries to low-tax countries, for instance by letting companies located in high-tax countries pay above the market price when buying goods and/or services from affiliated companies located in a low-tax countries. The overall objective of this project is to increase our knowledge of income shifting in and out of Norway. Existing Norwegian evidence (data from 1994 - 1996) shows that foreign controlled companies report lower profit than comparable domestic controlled companies. One purpose of this project is to evaluate the reliability of these results. It is plausible that firms within the wholesale and retail industries have particularly good opportunities to shift income since buying and selling goods is their main business. The second purpose is to analyse if there exists a relationship between reported profit and the volume of intrafirm trade. Results from the 1994 - 1996 period indicate that the earnings differential (i.e. the difference in reported profit between foreign and domestic controlled companies in Norway) has decreased over time. The third purpose is to expand the time period of investigation in order to verify if changes have taken place in the earnings differential and, if possible, find out why.


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