Manipulation of transfer prices by multi-national companies in Nigeria

Abstract

Background: Transfer pricing manipulation diminishes revenue generation by the host countries. The results of the investigations in the literature show divergence to the extent of the impact of transfer pricing on economic growth in both the low- and high-tax countries, especially as this type of investigation is still scanty in the literature. Aim: The study examines the effect of transfer pricing manipulation on economic growth in Nigeria. Setting: Multi-national companies in Nigeria. Methods: The auto-regressive distributed lag (ARDL) approach was applied to data from Nigeria between 1986 and 2019. Results: The findings reveal an insignificant relationship between economic growth and explanatory variables such as transfer pricing manipulation, unemployment rate, government revenue and trade openness. The result also shows a significant negative relationship between the exchange rate and economic growth. Conclusion: The study recommends that the government should implement proper monitoring of multinational companies to check their day-to-day transaction activities. This may help the government to generate more revenue, and serves as an avenue to create more employment opportunities. Contribution: In this study an important aspect is indicated in that multinational companies often misuse revenue to gain undeserved profits, rendering unnecessary costs to market and rendering other companies less competitive, as well as exploiting buyers and consumers. This is an important loophole that law- and policymakers as well as governments should pay attention to and act against.

Keywords

• transfer pricing manipulation
• government revenue
• unemployment
• economic growth and auto-regressive distributed lag (ardl)
• co-integration
• analysis