Profit Shifting Through Transfer Pricing: Evidence from French Firm Level Trade Data

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This paper provides direct evidence of profit shifting to low tax jurisdictions by multinational companies through transfer prices. Using detailed firm level export and import data by origin/destination and product for France, I show that the price wedge between arm's length and related party transactions varies systematically with the differential in corporate tax rate between France and the partner country. Profit shifting through transfer prices is estimated to have reduced the French corporate tax base by 8 bn USD in 2008. Its extent is growing in France over the 2000s. The related missing tax revenues amounts to 10% of the corporate tax paid by multinational groups located in France that trade with related party.