Transfer Pricing and Location of Intangibles - Spillover and Tax Avoidance through Profit Shifting

Publication: Scientific journalJournal articlepeer-review


This study examines how spillovers affect a multinational company's choice of an intangible's location and the corresponding transfer price for using this intangible. Our model uses a company with a domestic division in a high-tax country and a foreign division in a low-tax country, where each division's activities generate spillovers on the other division's income. In contrast to previous studies, our analysis incorporates an intangible's optimal location when the company trades off tax minimization and efficient activities. By locating the intangible abroad, the company reduces its tax liability, whereas locating the intangible domestically yields more efficient domestic division activities. For a high spillover of the domestic division, the company locates the intangible domestically. Our model supports empirical evidence regarding intangibles' location that is interpreted as "home bias". Additionally, we show how variations in regulatory parameters-arm's length range and tax rate differential-affect the divisions' activities and the intangible's location.
Original languageEnglish
Pages (from-to)129 - 148
JournalJournal of Management Accounting Research
Issue number1
Publication statusPublished - 2021

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502052 Business administration
  • 502033 Accounting
  • 502006 Controlling

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