Transfer pricing audit trainings in the Global South: are they effective in mobilizing domestic revenues?

Laudage Teles, Sabine
Externe Publikationen (2023)

published on papers.ssrn.com, 03.05.2023

Transfer pricing audits are an important tool for tax administrations to combat tax avoidance by multinational enterprises (MNEs). However, many countries in the Global South lack the capacity to conduct effective transfer pricing audits on the largest taxpayers within the country. The Tax Inspectors Without Borders (TIWB) program provides transfer pricing audit training to tax administrations in these countries. In this paper, I estimate the causal effects of TIWB trainings completed in 29 countries between 2012 and 2019 on corporate income tax revenues using a dynamic differences model and panel data. I find positive and significant effects of TIWB trainings on corporate tax revenues five to six years after the start of the programs, while no effect is found in the years prior to TIWB training. In a case study on Colombia, I find that the TIWB program significantly increased the effective tax rates and pre-tax profits of MNEs in Colombia relative to domestic firms. Thus, transfer pricing audit capacity building is effective in curbing profit shifting and increasing domestic revenues in countries in the Global South.