A general unconstrained model for transfer pricing in multinational supply chains

2008 ◽  
Vol 187 (3) ◽  
pp. 829-856 ◽  
Author(s):  
F. Villegas ◽  
J. Ouenniche
Keyword(s):  
Supply Chains ◽  
Transfer Pricing ◽  
Unconstrained Model

scholarly journals Amazon, Medtronic, the OECD on Risk Analysis: Thesis on Transfer Pricing

2017 ◽  
Author(s):  
Charles Edward Andrew Lincoln
Keyword(s):  
Supply Chains ◽  
Transfer Pricing ◽  
The United States ◽  
The Other ◽  
Profit Shifting ◽  
Agency Relationships ◽  
Other Hand ◽  
International Tax ◽  
Tax Court ◽  
The U.S

The mission of this thesis is to demonstrate the diverging adherence to contracts of the OECD and US in risk allocation for transfer pricing purposes as featured in BEPS Actions 8-10. The OECD adopts a principal of objective behavioral—non-agency—analysis of economic activity, which is impracticable and unworkable. The OECD denies that accurate legal contracts accurately delineate legal relationship. This implies an inherent fraud in corporate business management, which if true would be criminal in most countries—the OECD is implying everything in writing is a lie. The OECD denies the tax implications of principle-agent legal agency relationships as defined by contract law in its transfer pricing recommendations. On the other hand, the U.S. Tax Court still looks to the agency relationships between corporate entities. The U.S. Tax Court follows the correct approach.Corporate management can be divided between principle and agents. People usually think about management and shareholders, but there are also risk managers and asset managers that can be bifurcated. In terms of management, the bottom of the hierarchy is the managers of the factories. The capital fund managers or the shareholders have all the power—it will be taxed here not at the managers of the factories. The managers at the top of the hierarchy will get the highest level of remuneration. Reliance on contract is the only way that makes sense. Tax is based on legal—rather than equitable—matters. How would one tax equity?Two polar opposites define the alternative approaches to the proper appraisal of income for purposes of taxation for transfer pricing. On the one hand, the United States Tax Court has focused largely on contractual language and terms of agreement. On the other, hand the OECD through BEPS jurisdictions (most of the rest of the world where policies have been formulated) choose to analyze actual economic behavior and reality independent of the mere words chosen by the parties.Globalization and technology have greater importance in our daily lives every day. As technology and industrial processes grow every day, technology leads to greater globalization, and greater globalization of supply chains leads to more efficient and efficient technology. For example, years ago, heart problems would lead to death, but now small “battery” type instruments (pacemakers) can prevent heart attacks. The examples of the health benefits from technology are endless.As technology becomes greater and more efficient, globalization has also created supply chains and industrial production processes that are no longer local. As global supply chains increase in complexity, profits need to be properly allocated to certain jurisdictions for taxation purposes—to raise revenue support government functions for society’s benefit. This is a fundamental issue of international taxation. The leading principle for the allocation is the arm’s length principle, according to which related enterprises must charge prices that would have been charged in the open market. Although the principle’s goal aims at avoiding profit shifting, multinational enterprises for years used to shift profits to low tax jurisdictions to avoid taxes in high tax jurisdictions. In the early part of the 21st century increased to attention to these phenomena has lead to the OECD’s Base Erosion and Profit Shifting (BEPS) project to combat this harmful tax competition. This is the most groundbreaking change to the international tax treaty framework since the 1920s—that was initially set up to facilitate cross-border trade. This BEPS project has led to fundamental proposals—as a type of model law—to change the international tax system.

scholarly journals The Role of Transfer-Pricing Schemes in Coordinated Supply Chains

2010 ◽  
Vol 25 (3) ◽  
pp. 375-404 ◽  
Author(s):  
Kashi R. Balachandran ◽  
Shu-hsing Li ◽  
Taychang Wang ◽  
Hsiao-wen Wang
Keyword(s):  
Supply Chains ◽  
Transfer Pricing ◽  
Pricing Schemes

Transfer Pricing and Hold-Ups in Supply Chains

2004 ◽  
Vol 5 (2) ◽  
pp. 211-230 ◽  
Author(s):  
Sabine Böckem ◽  
Ulf Schiller
Keyword(s):  
Supply Chain ◽  
Supply Chains ◽  
Transfer Pricing ◽  
Central Office ◽  
Investment Problem ◽  
Symmetric Information ◽  
Fixed Quantity

Abstract We reconsider the hold-up problem under symmetric information when more than two parties form a ‘supply chain’. The parties are assumed to renegotiate bilaterally and sequentially. Potential trade distortions then arise in addition to the usual investment problem. Following Edlin and Reichelstein (1995, 1996), we consider fixed-quantity contracts. First-best allocations are shown to be attainable if the parties are able to commit to a ‘forced-compliance’ regime where a central office monitors the consistency of the bilateral renegotiations.

Global supply chains and transfer pricing

2014 ◽  
Vol 19 (4) ◽  
pp. 445-454 ◽  
Author(s):  
Timo Seppälä ◽  
Martin Kenney ◽  
Jyrki Ali-Yrkkö
Keyword(s):  
International Trade ◽  
Supply Chain ◽  
Supply Chains ◽  
Geographical Distribution ◽  
Transfer Pricing ◽  
Value Added ◽  
Global Supply Chains ◽  
Content Type ◽  
Level Data

Purpose – The purpose of this paper is to integrate the issue of transfer pricing and logistics costs to understand trade statistics and the operation of supply chains by using invoice-level data for a single globally sourced product of a multinational firm.Supply chains are central to understanding wealth creation and capture in an increasingly globalized production system. The increasing disaggregation and dispersal of supply chains is profoundly affecting the geographical distribution of value added, input costs and profits of multinational firms. This suggests that understanding supply chains and where the activities and accounting for these activities take place is crucial for understanding the causes and consequences of contemporary globalization. Design/methodology/approach – By using a case study of a single product and invoice-level data, it was possible to capture the actual costs incurred by a firm using a relatively simple global supply chain. The authors show how corporate intra-firm transfer pricing determines which business unit and location captures profits. A single firm provided the core data in this paper, including product- and firm-level information on intermediate product prices and input costs for all internal transfers. Findings – This paper advances interesting insights into trade in value added and shows that, though not often considered significant, transfer pricing is a critical issue for understanding the geographical distribution of value added. The authors conclude with some observations about the nature of global supply chains, the value of international trade statistics and a hidden advantage of an integrated firm operating on a global scale the ability to somewhat arbitrarily select the activities to which profits should be allocated. For nation states, as supply chains become more international and complex, critical measures, such as gross domestic product, worker productivity, etc., are becoming ever more imprecise. The economic geography of cost of inputs and profits continue to separate as multinational enterprises drive the disaggregation of value creation and value capture. Research limitations/implications – The case study facilitates an understanding of complex supply chain issues, thereby extending and deepening findings from previous research. This case study of transfer pricing in supply chains will assist other scholars in better formulating testable propositions for their studies and sensitize them to the internal complexities corporate managers face when making operationalizing decisions. Originality/value – The case study suggests that understanding the configuration of and accounting in supply chains is vital for accurately measuring any national economic statistics. This case study provides some bottom-up evidence that national accounts and international trade economics undertaken without a deep understanding of supply chain organization is likely to generate misleading results. The methodology of using invoice-level data can provide a more granular understanding of how supply chains are organized and where the value is added and captured. For practitioners, the data suggest that firms should think very carefully about which of their activities generate the most value, and value those accordingly.

Cost of Risk Transfer: Pricing Agreements in Residential Supply Chains

2004 ◽  
Vol 10 (3) ◽  
pp. 112-118 ◽  
Author(s):  
Kenneth D. Walsh ◽  
Howard H. Bashford ◽  
Anil Sawhney ◽  
Andreas Witjakso
Keyword(s):  
Supply Chains ◽  
Transfer Pricing ◽  
Risk Transfer

An online cost allocation model for horizontal supply chains

2021 ◽  
Vol 122 ◽  
pp. 102888
Author(s):  
Han Zou ◽  
Maged M. Dessouky ◽  
Shichun Hu
Keyword(s):  
Supply Chains ◽  
Cost Allocation ◽  
Allocation Model
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