A further investigation of the link between trade and income

When the foreign subsidiary has minority local ownership and MNF engages in transfer pricing, it intrafirm exports are always from the country with the higher marginal cost. Further, permitting deferral from home taxation of non-repatriated foreign profits changes the nature of intrafirm trade from efficient to perverse even when the foreign subsidiary is fully-owned by the MNF. Intrafirm trade differs significantly from that between unrelated buyers and sellers, and tariffs on such trade (when it is perverse) can restore global production efficiency. F12]