Purpose:

To analyze the regulations and fines of transfer prices in Mexico from the perspective of game theory.

Methodological design:

Two signaling models with incomplete information are used between the Tax Administration Service and multinational companies in which multinationals have private information that they do not share with the tax authority.

Results:

In the first model, there are two grouping equilibria, one in which the multinational company reports high income and the tax administration never audits, while the second is based on the fact that the multinational company reports low income and the tax authority audits with a certain probability.

Research limitations:

The models were made assuming that 20% of taxpayers evade taxes according to some studies because there is no precise information on the percentage of multinationals that evade taxes.

Findings:

It is found that a low level of audits does not reduce evasion, an increase in fines encourages audits and as long as variable fines continue to increase, multinationals will have no incentive to evade.

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