Transfer Pricing by U.S.-Based Multinational Firms

37 Pages Posted: 17 Aug 2006

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

J. Bradford Jensen

Georgetown University - Department of Strategy/Economics/Ethics/Public Policy; Peter G. Peterson Institute for International Economics

Peter K. Schott

Yale University - School of Management; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: September 2008

Abstract

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

Suggested Citation

Bernard, Andrew B. and Jensen, J. Bradford and Schott, Peter K., Transfer Pricing by U.S.-Based Multinational Firms (September 2008). Tuck School of Business Working Paper No. 2006-33, US Census Bureau Center for Economic Studies Paper No. CES-WP- 08-29, Available at SSRN: https://ssrn.com/abstract=924573 or http://dx.doi.org/10.2139/ssrn.924573

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

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J. Bradford Jensen

Georgetown University - Department of Strategy/Economics/Ethics/Public Policy ( email )

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Peter G. Peterson Institute for International Economics ( email )

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Peter K. Schott

Yale University - School of Management ( email )

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HOME PAGE: http://www.som.yale.edu/faculty/pks4

National Bureau of Economic Research (NBER)

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