Transfer Pricing and FDI

• Main Author: Patricia-Sabina Macelaru
• Format: Article
• Language: English
• Published: Danubius University 2013-08-01
• Series: Acta Universitatis Danubius: Oeconomica
• Subjects: foreign direct investment; tax; transfer pricing; multinational enterprises; profit repatriation
• Online Access: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/1812/1487

FDI analysis is usually performed within the frame of the win-win hypothesis. However, we believe that certain circumstances (MNEs following their own business objectives, lack of appropriate regulations, non-observance of the arm’s length principle) may generate disproportionate advantages at the level of FDI stakeholders. The disequilibrium between reinvested profits and repatriated profits may be viewed as a proof of such disproportionate advantages of stakeholders involved in FDI. In addition to figures showing the comparison between reinvested and repatriated profits, as well as the way in which such indicators vary e.g. in case of abnormal business conditions (global economy collapse), we try to show that lack/misuse of transfer pricing regulations may generate even more disequilibrium, the MNEs using intra-group transactions as an additional way of repatriating non-taxable/low tax profits.