Theory and Impact
Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Soocheol Lee, Kazuhiro Ueta, Janet E. Milne and Hope Ashiabor
Chapter 7: Toward green transfer pricing: including environmental parameters in transfer pricing rules
Environmental taxation is based on the idea that tax law may be supportive of environmental policies. At the national level, the relationship between tax and environmental law has been widely studied, proving that tax law can be a useful tool to foster environmental goals. At the international level, however, the question of how international taxation – and more specifically transfer pricing rules – interacts with environmental policies and environmental standards has not been much discussed so far. This chapter analyses one specific subject of international law – the multinational – from an environmental and tax perspective. In environmental as well as in tax law, the legislator faces the same challenges associated with regulating the activities of multinationals that operate cross-border. In tax law, the differences in tax regimes between jurisdictions may lead to profit shifting to low-tax countries, commonly called ‘tax havens’. The recent action plan on Base Erosion and Profit Shifting published by the Organization for Economic Cooperation and Development (OECD) illustrates the importance of this issue today. In environmental law, international differences in environmental standards may lead to the relocation of enterprises to ‘pollution havens’. Aside from the parallels that can be drawn between environmental and tax issues, environmental and tax policies may interact and eventually support each other in regulating the activities of multinationals.
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