Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data

TY - UNPB

T1 - Tax-motivated transfer mispricing in South Africa

T2 - Direct evidence using transaction data

AU - Wier, Ludvig

PY - 2018

Y1 - 2018

N2 - This paper provides the first direct systematic evidence of profit shifting through transfer mispricing in a developing country. Using South African transaction-level customs data, I directly test for transfer price deviations from arm’s-length pricing. I find that multinational firms in South Africa manipulate transfer prices in order to shift taxable profits to low-tax countries. The estimated tax loss is 0.5 per cent of corporate tax payments. My estimates do not support the common belief that transfer mispricing in South Africa is more severe than in advanced economies. I find that an OECD-recommended reform had no long-term impact on transfer mispricing but argue that the method used in this paper provides a cost-efficient way to curb transfer mispricing.

AB - This paper provides the first direct systematic evidence of profit shifting through transfer mispricing in a developing country. Using South African transaction-level customs data, I directly test for transfer price deviations from arm’s-length pricing. I find that multinational firms in South Africa manipulate transfer prices in order to shift taxable profits to low-tax countries. The estimated tax loss is 0.5 per cent of corporate tax payments. My estimates do not support the common belief that transfer mispricing in South Africa is more severe than in advanced economies. I find that an OECD-recommended reform had no long-term impact on transfer mispricing but argue that the method used in this paper provides a cost-efficient way to curb transfer mispricing.

KW - Faculty of Social Sciences

KW - tax

KW - international taxation

KW - profit shifting

KW - multinational firms

KW - developing countries

M3 - Working paper

SN - 978-92-9256-050-8

T3 - UNU WIDER Working Paper Series

BT - Tax-motivated transfer mispricing in South Africa

PB - UNU-WIDER

CY - Helsinki, Finland

ER -