Correlation between transfer pricing strictness index and foreign investment

The issue of transfer pricing has become a major topic of discussion in recent years, particularly in relation to multinational corporations. With the rise of globalization, multinational corporations have been able to take advantage of various tax regulations in different countries, leading to concerns about fairness and equity in the international tax system. This master thesis aims to examine the correlation between transfer pricing strictness index and foreign investment, with a focus on selected European countries. An OLS regression is conducted using gretl software. This study is important because transfer pricing, the tax bases of countries, the movement of income and wealth across national borders, and the tax obligations placed on multinational corporations are all factors that need to be taken into account. The revenue and costs of related firms that operate under separate tax systems, and therefore their profits, and consequently the tax base of the country, are eroded to a large extent as a result of transfer pricing. Thus, both tax administrations and individuals can benefit from a better understanding of transfer pricing. The findings of this study could potentially help policymakers develop better strategies to regulate multinational corporations and ensure that the international tax system is fair and equitable for all countries.