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Profit-shifting in Norway: A theoretical and empirical analysis

Tildelt: kr 2,1 mill.





2007 - 2010

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The aim of this project is to undertake theoretical and empirical research on taxation and multinationals related to MNCs' profit-shifting activities. At a theoretical level the research group wants to undertake studies in two different directions. One se t of questions aims at developing models based on the Norwegian tax code that can provide answers to optimal repatriation strategies and financial policy. The set of questions aims at understanding transfer pricing behaviour in two-sided platforms (2SPs) . 2SPs cater to two or more distinct groups of customers, facilitating value-creating interactions between them. Their pricing strategies defy standard conventional behaviour and pricing in one market is often zero or below marginal cost. Arm's length pri ces based on a cost plus strategy, say, are therefore not a viable instrument for curbing transfer pricing. 2SPs exist in markets such as broadcasting, broadband services, search engines, telecommunications, banking, and the software and computer industry . The theory models developed will be put to use in connection with empirical analysis. Our research group has access to firm level data for both inward and outward foreign direct investments (FDI) in Norway that have a large potential for analysing pr ofit-shifting behaviour as well as tax avoidance strategies. Our data sources have not previously been used for this type of research. The set of issues to be analysed are: (i) Do MNCs report lower profits than local firms all else equal? (ii) Are daughte r companies in some countries systematically more or less profitable than the Norwegian mother company, and if so, are the differences related to bilateral effective tax rates? (iv) Is the ownership share of a multinational corporation in a foreign affili ate related to the affiliate?s profitability? (v) Is debt used to avoid taxation by placing debt on the books of affiliates in high tax countries?