Abstract
In this paper we analyze possible source of tax evasion in the multinational entity (hereinafter "MNE"). We show that the tax obligation of the whole MNE depends on the ownership structure of companies, which form MNE and that the structure could be described by matrix form. Therefore the basic tax optimization tasks of MNE via transfer pricing can be understood as linear programming problems. In addition we propose a way to identify possible tax evasion realized via transfer pricing in MNE.
Highlights
Literature on transfer pricing was quite rare for a long time – until the 7th decade of the 20th century
In our last paper (Buus and Brada, 2008) we have provided comparison of transfer pricing techniques proposed by OECD (2001) transfer pricing guidelines
With respect to the contemporary practice and theoretical findings and with respect to the importance of multinational enterprises (MNEs) we consider to be highly desirable to widen the theory of transfer pricing and derive a solution for transfer pricing regulation, that will lead to Pareto-optimal equilibrium even in the case of non-cooperative behavior of particular tax authorities
Summary
Literature on transfer pricing was quite rare for a long time – until the 7th decade of the 20th century. With respect to the contemporary practice and theoretical findings and with respect to the importance of MNEs we consider to be highly desirable to widen the theory of transfer pricing and derive a solution for transfer pricing regulation, that will lead to Pareto-optimal equilibrium even in the case of non-cooperative behavior of particular tax authorities. It can be shown on the latest steps of CEE governments (and even the German government) leading to lower corporate income tax rates, that we cannot expect a cooperative behavior. In this paper does not look into ways of finding possible tax evaders among various types of MNE in given economy
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