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Transfer Pricing and Its Role in Tax Avoidance and Flight Of Capital: Some Theory and Evidence
Prem Sikka,
University of Essex
Colin Haslam, University of Hertfordshire UK.
ABSTRACT. In conventional accounting literature, ‘transfer pricing’ is portrayed as a matter of searching for a technique for optimal allocation of costs and revenues amongst divisions, subsidiaries and joint ventures within a group of related entities. This paper argues that ‘transfer pricing’ is deeply implicated in social conflict and enables companies to avoid taxes and encourage flight of capital. Such practices enable companies to report higher earnings, but many societies are impoverished as a result. The paper locates corporations within the dynamics of capitalism and argues that globalisation has given companies and business advisors unprecedented opportunities to craft transfer prices to advance their private economic interests. Evidence is provided by examining some of the transfer prices practices used by corporations to avoid taxes in developing and developed economies.
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