Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/224121 
Year of Publication: 
2020
Series/Report no.: 
Munich Discussion Paper No. 2020-1
Publisher: 
Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät, München
Abstract: 
This study explores the new roles of rules of origin (ROO) when multinational enterprises (MNEs) manipulate their transfer prices to avoid a high corporate tax. ROO of a free trade agreement (FTA) require exporters to identify the origin of exports to be eligible for a preferential tariff rate. The results suggest that a value-added criterion of ROO restricts MNEs' abusive transfer pricing. Interestingly, an FTA with ROO can induce MNEs to shift profits from a low-tax country to a high-tax country. Because ROO augment tax revenues inside FTA countries, they can transform a welfare-reducing FTA into a welfare-improving FTA.
Subjects: 
Rules of origin
Free trade agreement
Transfer pricing
JEL: 
F13
F15
F23
H26
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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