{"language":[{"iso":"eng"}],"main_file_link":[{"url":"https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3114071"}],"series_title":"WU International Taxation Research Paper Series","date_updated":"2022-01-06T07:01:34Z","type":"working_paper","status":"public","year":"2018","abstract":[{"text":"This study analyzes the impact of transfer pricing on multinational enterprises’ R&D investment decisions. Specifically, I examine the effects of two commonly used contract designs to exchange and develop intangible assets across group affiliates: licensing and cost sharing agreements. Whilst serving as a tool to allocate taxable income between group affiliates, the economic implications of licensing and cost sharing agreements differ. Whereas licensing agreements provide for a sharing rule on the intangible’s profits, cost sharing agreements on the other hand provide a sharing rule on R&D development costs. This difference matters when firms simultaneously use internal transfer prices to allocate taxable income and provide local management with sufficient investment incentives. Using a multiple-agent, moral hazard investment framework I model a multinational firm with comparable group affiliates in two countries that delegates the R&D investment decision to a local risk and effort averse affiliate manager. The results suggest that the optimal contract not only depends on available tax benefits, but also on R&D investment and manager specific characteristics. A licensing agreement provides management with larger incentives to invest in R&D mitigating agency concerns associated with R&D. On the other hand, using a cost sharing agreement the firm can cater different risk preferences among managers potentially increasing investment. The arm’s length principle however may distort an efficient allocation of R&D costs when using a cost sharing agreement.","lang":"eng"}],"author":[{"first_name":"Tobias","full_name":"Bornemann, Tobias","last_name":"Bornemann"}],"department":[{"_id":"187"}],"title":"Do Transfer Pricing Rules Distort R&D Investment Decisions?","_id":"5008","volume":"No. 2018-02","citation":{"chicago":"Bornemann, Tobias. <i>Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?</i> Vol. No. 2018-02. WU International Taxation Research Paper Series, 2018.","short":"T. Bornemann, Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?, 2018.","bibtex":"@book{Bornemann_2018, series={WU International Taxation Research Paper Series}, title={Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?}, volume={No. 2018-02}, author={Bornemann, Tobias}, year={2018}, collection={WU International Taxation Research Paper Series} }","apa":"Bornemann, T. (2018). <i>Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?</i> (Vol. No. 2018-02).","ieee":"T. Bornemann, <i>Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?</i>, vol. No. 2018-02. 2018.","mla":"Bornemann, Tobias. <i>Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?</i> Vol. No. 2018-02, 2018.","ama":"Bornemann T. <i>Do Transfer Pricing Rules Distort R&#38;D Investment Decisions?</i> Vol No. 2018-02.; 2018."},"user_id":"68607","date_created":"2018-10-30T12:16:19Z"}