Transfer Pricing by U.S.-Based Multinational Firms
37 Pages Posted: 17 Aug 2006
Date Written: September 2008
This paper examines how prices set by multinational firms vary across arm's-length and related party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arm's-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arm's-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.
Keywords: Related party trade, Corporate taxes, Intrafirm trade, Arm's-length sales, Tariffs, Market structure, Pricing-to-market
JEL Classification: F23, F14, H25, H26, H32
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