Debt and Transfer Pricing: Implications on Business Tax Policy

Authors

Nicola Comincioli, University of Brescia and Fondazione Eni Enrico MatteiFollow
Paolo M. Panteghini, University of Brescia and CESifo
Sergio Vergalli, University of Brescia and Fondazione Eni Enrico MatteiFollow

Date of This Version

10-26-2020

Abstract

In this article we introduce model to describe the behavior of a multinational company (MNC) that operates transfer pricing and debt shifting, with the purpose of incrementing its value, intended as the sum of equity and debt. We compute, in a stochastic environment and under default risk, the optimal shares of profit and debt to be shifted and show how they are aected by exogenous features of the market. In addition, by means of a numerical analysis, we simulate and quantify the benefit arising from the exploitation of tax avoidance practices and study the corresponding impact on MNC's fundamental indicators. A wide sensitivity analysis on model's parameters is also provided.

Recommended Citation

Comincioli, Nicola; Panteghini, Paolo M.; and Vergalli, Sergio, "Debt and Transfer Pricing: Implications on Business Tax Policy" (October 26, 2020). Fondazione Eni Enrico Mattei Working Papers. Paper 1304.
https://services.bepress.com/feem/paper1304