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

ABSTRACT 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 enhancing standards consistency and global tax transparency influences tax avoidance and double taxation, producer and consumer surplus, and countries’ tax revenue. Although increasing transparency is generally perceived to discourage tax avoidance, we show that this effect vanishes when standards are inconsistent. We demonstrate that high global tax transparency and consistent standards maximize global social welfare. However, from the perspective of multinational companies or individual countries, the optimal mix of consistency and transparency may differ. These findings highlight why transfer pricing harmonization is difficult and how single-player incentives undermine the envisioned benefits of tax harmonization. This study offers valuable insights for policymakers who aim to curb tax avoidance and mitigate the risk of double taxation.