The impact of transfer pricing regulations on the location decisions of MNEs

Abstract

This chapter provides a survey of transfer pricing regulations in 28 countries over four years. Using variables related to the regulations obtained from the survey, we explore the effects of transfer pricing regulations on foreign direct investments (FDIs). We also investigate the impacts of introducing Organisation for Economic Cooperation and Development (OECD) 2010 guidelines on FDI incentives. Among several elements in the regulations, advance pricing agreements (APAs) in source countries and documentation rules in host countries have significant effects on FDI flow. APAs in source countries increase FDI incentives, and documentation rules in host countries decrease them. This implies that transfer pricing regulations play an important role in the location decisions of multinationals. We also find that the guideline reform in 2010 has no significant effect to date on location decisions.