Multinationals and Tax Evasion: Estimating a Direct Channel for Income Shifting

We estimate the importance of tax induced transfer pricing by Norwegian based multinational enterprises in the period 1999-2004. We find strong support for intra firm transfer pricing related to tax incentives. The incentive is estimated both at the parent firm level by including parent firm fixed effects, and at the affiliate level, by including affiliate firm fixed effects. Tax motivated manipulation of transfer prices are particularly strong for firms that use one of the big four international accounting firms, for big firms and for firms being controlled by domestic owners. Manipulation of transfer prices are more pronounced for larger differences in home and host country tax rates.