Studies On Transfer Pricing Tax Competition

Economic globalization has brought opportunities and challengers to countries all over the world. Transfer pricing has become an absolutely necessary way of management and strategies realization for multinational companies. Tax authorities are increasing enforcement of transfer pricing regulations, and more countries has introduced transfer pricing rules and emendated or perfected them constantly since 1980s.Transfer pricing rules represent the particularity that they are not only against tax avoidance, but also effect reallocation of tax revenue among countries and tax burden and related risks. With this background many countries carry out adjustment of transfer pricing rules constantly, and try to take the tax rules as participation means in tax competition for the purpose of obtaining larger tax base which is reasonable or maybe not, maintenance of the tax fairness, promoting the development of economy, attracting foreign direct investment and so on. This tax competition in which governments make use of transfer pricing taxation is defined as transfer pricing tax competition in this paper. And this paper studies how governments take part in transfer pricing tax competition and its related influencing factors theoretically and practically. Four parts are included in this paper except introduction.Firstly, a new concept named"transfer pricing tax competition"is introduced in Chapter Two, and the means, purposes and features of transfer pricing tax competition are elaborated in detail.Secondly, this paper makes theoretical analysis of the competition of transfer pricing taxation based on game theories concerning complete information and dynamics. In models of theoretical analysis the aim of multinational companies are assumed to be maximizing the global income and related adjustment of corresponding tax authority is considered. The main conclusions of this part are as follows: 1)transfer pricing taxation dose reduce tax revenue of other countries, no matter whether there is related adjustment; 2)over adjustment of transfer pricing will cause tax erosion of other countries, and enforces multinational companies to choose the strategy of transferring profit from countries with low tax rate to countries with high tax rat, which leads to more serious problems of double taxation; 3) related adjustment dose reduce double taxation risks, and it has little influence on the transfer pricing strategy of multinational companies but scrutiny of other tax authorities; 4)there are diversities which cannot be ignored between two types of punishment regulations; 5)although both punishment regulations and documentation requirements can increase the degree of tax compliance, punishment may worsen double taxation and conflicts, while documentation requirements can reduce double taxation, add tax revenue and restrain the over adjustment,and the influence of documentation requirements on tax base of other countries is uncertain.Thirdly, practical analysis of transfer pricing tax competition is discussed in Chapter Four. This part proves the existence of transfer pricing tax competition. The practical analysis also finds ways by which countries take part in transfer pricing tax competition. The main conclusions include: 1)the transfer pricing tax competition dose exist, and adjustment methods are the focal point of competition, competition of transfer pricing causes both negative and positive factors, and it can promote adjustment methods of transfer pricing to develop with higher efficiency, more operability and acceptance; 2) transfer pricing tax competition leads to both negative and positive influences; 3) many countries introduce FDI and help expansion abroad of multinational companies by using of related party relationship rules, adjustment methods rules, documentation requirements and punishment rules; 4)Most countries pay more attention to tax coordination in which the interests of multinational companies are considered more than before, including the coordination of documentation requirements and punishment; 5)in transfer pricing tax competition our country emphasize introducing FDI more than tax base, while new transfer pricing rules pay more attention to protect tax base.Fourthly, in Chapter Five six suggestions are provided for perfecting our transfer pricing taxation, including:1)extending the definition scope of correlative relationship; 2)standardizing adjustment method; 3)strengthening proper punishment; 4)reducing taxpayers'burden of documentation requirements; 5)encouraging bilateral or multilateral advanced pricing agreements; 6)elaborating related adjustment rules.This paper provides a new view and theoretical support for our country to amend and complete transfer pricing rules which beneficial to use of FDI, strategy for overseas businesses and conflict avoidance.