Transfer Pricing and Macroeconomic Stability: A Multi-Country Analysis of European Economies

Transfer pricing has become a major channel through which multinational enterprises shift profits across countries. This study examines the macroeconomic and institutional determinants of transfer pricing in seven European economies (France, Spain, Germany, the United Kingdom, Italy, the Netherlands, and Portugal) over the period 1985–2025. The main objective is to identify the key factors influencing profit shifting and to analyze the mechanisms through which multinational firms allocate profits across jurisdictions. The study employs panel data techniques and uses two different proxies to capture transfer pricing practices (trade-based and intangible-based channels). To analyze both long-run and short-run relationships between transfer pricing, exchange rate dynamics, foreign direct investment, inflation and institutional quality, the analysis relies on heterogeneous panel estimators and cointegration tests, supported by several robustness checks. The empirical results reveal the existence of a long-run relationship between transfer pricing and its macroeconomic and institutional determinants. Exchange rate fluctuations and inflation exert a negative effect on transfer pricing, whereas Foreign Direct Investment has a positive impact by expanding multinational investment networks and intra-group transactions. The effect of institutional quality, proxied by control of corruption, appears more heterogeneous and may vary across jurisdictions as well as across the type of transfer pricing channel, whether related to tangible trade or intangible assets. These results emphasize the importance of institutional quality and international tax coordination in limiting aggressive profit-shifting practices.

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Publication Details

Journal
Journal of risk and financial management
Published
2026-03-16
DOI
https://doi.org/10.3390/jrfm19030218
Primary Topic
Corporate Taxation and Avoidance
Type
article
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article

Transfer Pricing and Macroeconomic Stability: A Multi-Country Analysis of European Economies

Zakariae Bel Mkaddem, Mohammed Amine Hajjaj, Hicham Es-Saadi, Imane Tesse et al.
Journal of risk and financial management
Corporate Taxation and Avoidance
article

Transfer Pricing and Macroeconomic Stability: A Multi-Country Analysis of European Economies

Zakariae Bel Mkaddem, Mohammed Amine Hajjaj, Hicham Es-Saadi, Imane Tesse, Jihane Chahib
article en

Abstract

Transfer pricing has become a major channel through which multinational enterprises shift profits across countries. This study examines the macroeconomic and institutional determinants of transfer pricing in seven European economies (France, Spain, Germany, the United Kingdom, Italy, the Netherlands, and Portugal) over the period 1985–2025. The main objective is to identify the key factors influencing profit shifting and to analyze the mechanisms through which multinational firms allocate profits across jurisdictions. The study employs panel data techniques and uses two different proxies to capture transfer pricing practices (trade-based and intangible-based channels). To analyze both long-run and short-run relationships between transfer pricing, exchange rate dynamics, foreign direct investment, inflation and institutional quality, the analysis relies on heterogeneous panel estimators and cointegration tests, supported by several robustness checks. The empirical results reveal the existence of a long-run relationship between transfer pricing and its macroeconomic and institutional determinants. Exchange rate fluctuations and inflation exert a negative effect on transfer pricing, whereas Foreign Direct Investment has a positive impact by expanding multinational investment networks and intra-group transactions. The effect of institutional quality, proxied by control of corruption, appears more heterogeneous and may vary across jurisdictions as well as across the type of transfer pricing channel, whether related to tangible trade or intangible assets. These results emphasize the importance of institutional quality and international tax coordination in limiting aggressive profit-shifting practices.

Journal of risk and financial managementVol. 19(3)
Chouaib Doukkali University (MA)
Peace, Justice and strong institutions
Openalex Percentile: Top 20%
Corporate Taxation and Avoidance
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