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The effect of transfert pricing documentation requirements on tax compliance costs and administrative costs

University of Mannheim - MANNHEIM - 2021

To combat multinational firms’ profit shifting activities, countries around the world implemented tranfer pricing documentation rules over recent decades. While there is first evidence that provisions constrain profit shifting behavior, the literature has so far been silent on potential effects on firms’ compliance burdens and tax administrative costs. In this project, we aim to fill this gap. The empirical design exploits the introduction and modifications of French transfer price documentation requirements and tracks whether affected firms change the size of their finance or accounting departments, relative to control entities, in a difference-in-differences approach. Additionally, we assess how the rules affect the size of gouvernment tax administrative departments.