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International Taxation and Multinational Activity$
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James R. Hines

Print publication date: 2001

Print ISBN-13: 9780226341736

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226341750.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 21 September 2021

The Impact of Transfer Pricing on Intrafirm Trade

The Impact of Transfer Pricing on Intrafirm Trade

(p.173) 7 The Impact of Transfer Pricing on Intrafirm Trade
International Taxation and Multinational Activity

Kimberly A. Clausing

University of Chicago Press

Multinational corporations (MNCs) play a very large role in international trade. Not only is there a substantial amount of arm's-length trade between MNCs and unaffiliated buyers, but trade within MNCs is also quite considerable. For instance, in 1994, this intrafirm trade accounted for approximately 36 percent of exports and 43 percent of imports in the United States. These fractions vary somewhat from year to year, but intrafirm trade has been a similarly large share of international trade since 1977. Recently, researchers have devoted some attention to examining how intrafirm trade may be different from arm's-length trade. One essential reason intrafirm trade may differ from non-intrafirm trade results from the fact that MNCs may alter their transactions in order to minimize worldwide tax burdens. This chapter discusses the impact of transfer pricing on intrafirm trade. Using data on the operations of U.S. parent companies and their foreign affiliates, it examines the relationship between the tax minimization strategies of MNCs and intrafirm trade. The results indicate that taxes have a substantial influence on intrafirm trade flows.

Keywords:   transfer pricing, intrafirm trade, United States, multinational corporations, taxes, tax minimization, international trade

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