Tax Avoidance and Transfer Pricing: Evidence From Greece – Transfer Price Manipulation and Earnings Management

2. Literature Review

The current international research on intra-group transactions is broadly divided into two categories. The first deals mainly with the best possible strategy with respect to the different tax rates, while the second focuses on the reaction of governments to intra-group transactions and their impact on financial growth. Contrary to optimal government policies that are usually analyzed theoretically, business strategies are often confirmed by empirical models. Kant (1990), for example, created a framework according to which a multinational corporation regulates prices on ​​intragroup exports/imports, depending on the tax rate in each region. Later, Schindler and Schjelderup (2014) analyzed the optimal corporate taxation and found that it would be optimal for any government to change corporate investment decisions by reducing tax rates to eliminate the incentive for intra-group transactions. Similarly, Raimondos-Moller and Scharf (2002) have shown that governments use intra-group trading rules strategically to gain a competitive advantage over other countries.