Transfer Pricing and Global Tax Evasion: History, Theory, and Estimation Methodologies

Abstract

The manipulation of transfer prices is a practice used by multinational corporations to evade taxes by overstating costs or understating prices, thereby shifting profits to tax havens. This paper explores the historical context surrounding the emergence of fiscal havens and their subsequent global expansion. It reviews economic theories addressing the issue, ranging from neoclassical to Marxist approaches. The study also outlines methodologies for estimating such manipulation, including bilateral trade data comparisons and abnormal price analysis. We conclude by emphasizing the need for greater transparency and regulation to curb these practices, which undermine tax collection and global economic equity.