Can Transfer Price Documentation Rules Curb Profit Shifting? New Evidence from France
Transfer pricing documentation rules are a central element of the international anti-profit-shifting architecture: They are designed to curb the strategic pricing of intra-firm transactions, and, thereby, the shifting of taxable income to low-tax jurisdictions. Despite their widespread adoption, relatively little is known about their effectiveness and their implications for real economic activity. A study by TRR 266 researchers Katharina Schmidt, Johannes Voget and Sophia Wickel together with Sabine Laudage Teles, Nadine Riedel and Kristina Strohmaier, published in the Journal of Public Economics, aims to fill this gap. The findings suggest that tax transparency mandates often come at a cost – even for the implementing country.
In 2010, France introduced transfer pricing documentation rules. Large multinationals (groups where at least one affiliate has turnover or assets above €400 million) were now legally required to document all their intra-firm trade prices. On demand, they had to demonstrate that those prices were set at arm’s length, meaning that the prices mirror what two unrelated businesses would charge each other.
The reform fundamentally changed how transfer pricing rules were enforced. Before 2010, France had general transfer pricing rules on the books, but enforcement was reactive. The new law turned the tables: companies had to proactively prove compliance. To measure how the reform affected firm behavior, we compare two groups: large multinationals that had to comply with the new documentation rules and smaller multinationals below the €400 million threshold, which were exempt from the requirement. Using French administrative data and the global Orbis accounting database, we track both groups from 2007 to 2015, isolating the reform’s effect.
Less Tax Avoidance, but Also Less Investment
The results illustrate a genuine policy trade-off rather than a simple success story.
On tax avoidance: The reform worked. After 2010, affected firms were significantly less likely to report near-zero corporate taxes in France. Our estimates suggest that the reform reduced the incidence of this behavior by around 5.6%, generating roughly €187 million in additional annual tax revenue from affected firms. In other words, requiring documentation appears to have made it meaningfully harder, or at least more costly, for multinationals to shift profits out of France.
On investment: Here the story gets more complicated. After the reform, the same firms that paid more taxes also invested less. Their fixed assets (physical capital like machinery, equipment, and property) declined by around 3% relative to the control group. This pattern is consistent with two forces working together: higher effective tax costs (now that profit shifting was constrained) and the compliance burden of preparing and maintaining documentation for every intra-firm transaction.
The finding suggests that stricter transparency rules, while fiscally effective, may come at a cost to the domestic economies that enact them.
Cross-Border Effects: What Happened Outside France
What This Means for Policymakers, Businesses, and the Global Tax Debate
These findings inform ongoing policy discussions about the design of the international corporate tax system. Governments around the world have introduced a range of measures, both individually and through international cooperation, to restrain cross‑border tax avoidance. Transfer pricing rules are central to these efforts because strategic pricing of intra-firm trade is widely viewed as a key channel of profit shifting. Yet there is still limited evidence on how well these rules work in practice and what economic costs they create.
This research offers timely empirical grounding for several ongoing debates:
For governments, the study confirms that documentation requirements can raise tax revenues, but also reduce local investments. The design of these rules, including thresholds, compliance costs, and enforcement intensity, matters.
For multinationals, the research highlights that compliance costs and higher effective tax rates are both real consequences of tighter documentation regimes, particularly for those operating structures with significant low-tax components.
For economists and researchers, the paper offers causal estimates of how transfer pricing documentation rules (as opposed to general transfer pricing rules) affect both tax behavior and real economic activity and trace spillover effects onto foreign affiliates.
Conclusion: Understanding the Full Picture
The French experience adds important nuance to debates about international tax enforcement. The evidence indicates that transfer pricing documentation requirements can reduce aggressive profit shifting and raise tax revenues. It equally indicates that these gains come with costs: lower domestic investment and reduced activity at low-tax foreign affiliates. Whether those trade-offs are worthwhile depends on a range of factors, including the scale of prior profit shifting, the design of the rules, and how policymakers weigh fiscal and investment objectives.
As more countries adopt and tighten similar measures, evidence of this kind will be essential for assessing not just whether transparency rules work, but what they cost (and for whom).
To cite this blog:
Schmidt, K., Voget, J., Wickel, S. (2026). Can Transfer Price Documentation Rules Curb Profit Shifting? New Evidence from France. TRR 266 Accounting for Transparency Blog. https://www.accounting-for-transparency.de/transfer-price-documentation-rules-evidence-from-france/
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