Is Tax Transfer Pricing Harmonization a Panacea? Real Effects of Global Tax Transparency and Standards Consistency

This study investigates the impact of the harmonization of tax transfer pricing across jurisdictions on multinational companies’ reporting and tax authorities’ auditing strategies. Applying a game theoretical approach, we assess how consistent standards and enhanced reporting transparency influence firms’ tax avoidance and profits and countries’ tax revenue. Our analysis reveals that, while harmonization is generally perceived as discouraging tax avoidance, the effects depend on firms’ and countries’ profiles. We show that multinationals’ equilibrium profit can increase or decrease with enhanced reporting transparency, depending on whether standards are consistent. We find that low-tax countries benefit in tax revenues from greater transparency, while high-tax countries may prefer less. Interestingly, high-tax countries may even benefit from inconsistency in standards. These findings challenge the expected effects of harmonization and offer valuable insights for policymakers aiming to curb tax avoidance and mitigate the risk of double taxation.