Article (Scientific journals)
Transfer pricing rules, OECD guidelines, and market distortions
Behrens, Kristian; Peralta, Susana; Picard, Pierre M.
2014In Journal of Public Economic Theory
Peer Reviewed verified by ORBi


Full Text
2010-20-Transfer pricing rules OECD guidelines and market distortions (1).pdf
Author postprint (531.48 kB)
Request a copy

All documents in ORBilu are protected by a user license.

Send to


Keywords :
transfer pricing; OECD guidelines; multinationals and exporters; organizational choice; arm's length
Abstract :
[en] We study the impact of transfer pricing rules on sales prices, firms' organizational structure, and consumers' utility within a two-country monopolistic competition model featuring source-based profit taxes that differ across countries. Firms can either become multinationals, i.e., they serve the foreign market through a fully controlled a¢ liate; or they can become exporters, i.e., they serve the foreign market by contracting with an independent distributor. Compared to the benchmark cases, where tax authorities are either unable to audit firms or where they are able to audit them perfectly, the use of the OECD's Comparable Uncontrolled Price (CUP) or Cost-Plus (CP) rule distorts firms' output and pricing decisions. The reason is that the comparable arm's length transactions between exporters and distributors, which serve as benchmarks, are not efficient. We show that implementing the CUP or CP rules is detrimental to consumers in the low tax country, yet benefits consumers in the high tax country.
Disciplines :
Author, co-author :
Behrens, Kristian;  Université Catholique de Louvain - UCL
Peralta, Susana;  Universidade Nova de Lisboa
Picard, Pierre M. ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
External co-authors :
Language :
Title :
Transfer pricing rules, OECD guidelines, and market distortions
Publication date :
Journal title :
Journal of Public Economic Theory
Publisher :
Blackwell Publishing
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBilu :
since 10 December 2013


Number of views
91 (10 by Unilu)
Number of downloads
4 (3 by Unilu)

Scopus citations®
Scopus citations®
without self-citations
WoS citations


Similar publications

Contact ORBilu