Anti-Tax Avoidance Rules and International Trade

Over recent decades, countries around the world have introduced transfer pricing regulations to constrain tax-motivated strategic mis-pricing of intra-firm trade. While the literature has paid some attention to studying the effectiveness of the provisions in limiting mis-pricing behavior, work on potential real consequences of the rules is scarce. In this paper, we show that transfer pricing regulations distort the trading behavior of MNEs. Drawing on rich administrative firm-level trade data from Denmark, our findings document that tighter transfer price rules reduce firms’ propensity to engage in intra-firm trade on affected routes. There is no indication for intra-firm trade responses at the intensive margin. We also find no changes in the real economic activity of treated firms in Denmark