Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing
IMF Working Papers, September 23, 2022
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- Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing
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Bibliographic details
- Authors: Sebastian Beer, Sebastien Leduc, Jan Loeprick
- Published: September 23, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400219221.001
Summary
- Simplified transfer pricing approaches seek to reduce administrative and compliance costs by relying on an approximation of the true tax base, potentially distorting resource allocation.
- The paper examines the efficiency cost of transfer pricing simplification theoretically and empirically using firm-level data.
Data and empirical approach
- Sample: 300,000 firms located in 22 countries.
- Scope: Cross-sector analysis with a focused examination of the manufacturing sector.
- Methods: Combination of theoretical modeling and empirical estimation to quantify efficiency losses associated with common transfer pricing practices and simplification.
Key empirical findings
- Common transfer pricing practices reduce efficiency between 0.25 and 2.2 percent of total factor productivity across sectors.
- Focusing on the manufacturing sector, simplification more than doubles sectoral inefficiency on average.
- There is substantial heterogeneity: large differences across sectors, with moderate efficiency costs in several sectors.
Policy implications and considerations
- Simplification reduces administrative and compliance burdens but entails measurable efficiency costs through distortions in resource allocation.
- Policymakers should weigh the trade-off between lower administration/compliance costs and the estimated efficiency losses, which vary across sectors.
- Sector-specific assessments are important given the large differences in efficiency costs; a one-size-fits-all simplification regime may produce disproportionately large inefficiencies in some sectors (notably manufacturing).
Publication metadata (selected)
- Authors: Sebastian Beer, Sebastien Leduc, Jan Loeprick
- Date: September 23, 2022
- Series: IMF Working Paper No. 2022/193
- Pages: 27
- DOI: https://doi.org/10.5089/9798400219221.001
- ISBN: 9798400219221
- ISSN: 1018-5941
Source: Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing, Sebastian Beer; Sebastien Leduc; Jan Loeprick (IMF Working Papers 2022/193).
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