Risk-Sharing and Risk-Spreading in the Japanese Auto Industry: Profit Allocation Systems of Full Cost-Based Transfer Pricing

2018 ◽  
pp. 301-328
Keyword(s):  
Risk Sharing ◽  
Transfer Pricing ◽  
Auto Industry ◽  
Full Cost ◽  
Profit Allocation ◽  
Risk Spreading

Full-Cost Transfer Pricing and Cost Management

2016 ◽  
Vol 28 (3) ◽  
pp. 63-81 ◽  
Author(s):  
Jan Bouwens ◽  
Bert Steens
Keyword(s):  
Cost Management ◽  
Transfer Pricing ◽  
Data Availability ◽  
Credible Commitment ◽  
Risk Of Falling ◽  
Full Cost ◽  
Cost Cutting ◽  
Death Spiral ◽  
Transfer Prices ◽  
Jel Classifications

ABSTRACT Full-cost transfer pricing has been criticized for providing production units with insufficient incentives to economize. Our empirical study based on data from a large producer of consumer goods shows that charging full-cost transfer prices to downstream sales units can send upstream production units into a death spiral. However, our results also suggest that production units reduce costs to prevent the death spiral. We observe that managers focus their cost-cutting efforts on unit variable costs and on products with the best sales prospects. These results also suggest that, when production units are at risk of falling into a death spiral, full-cost transfer pricing can serve as a credible commitment device to motivate managers to reduce costs. JEL Classifications: D24; M31; M41; M50. Data Availability: We were given the opportunity to work with a company's proprietary database that contains sensitive and classified data that cannot be disclosed due to a non-disclosure agreement. At the start of our research, the company agreed to be referred to as Carepro, which is fictitious and does not correspond to any other existing company with that same or a similar name.

scholarly journals Profit Allocation in the Global Supply Chain with Transfer Pricing and Exchange Rate

2019 ◽  
Vol 39 ◽  
pp. 1715-1723
Author(s):  
Qian Huang ◽  
Jiahua Weng ◽  
Shunichi Ohmori ◽  
Kazuho Yoshimoto
Keyword(s):  
Supply Chain ◽  
Exchange Rate ◽  
Transfer Pricing ◽  
Global Supply Chain ◽  
Profit Allocation

scholarly journals The Transfer-Pricing Profit-Split Method After BEPS: Back to the Future

2019 ◽  
Vol 67 (4) ◽  
pp. 1077-1105
Author(s):  
Michael Kobetsky
Keyword(s):  
Transfer Pricing ◽  
Digital Economy ◽  
Profit Shifting ◽  
Allocation Rules ◽  
Split Method ◽  
Profit Allocation ◽  
Arm’S Length Principle ◽  
The Future ◽  
Development Group

In 2018, the Organisation for Economic Co-operation and Development/Group of Twenty (OECD/G20) Inclusive Framework on base erosion and profit shifting (BEPS): action 10 issued revised guidance on the transactional profit-split method. Regrettably, the revised guidance failed to provide the opportunity for the profit-split method to be more often the most appropriate transfer-pricing method. The revised guidance expressly states that the lack of comparable uncontrolled transactions, by itself, is not a basis for the use of the profit-split method. Under the former guidance, the profit-split method was used infrequently. In the revised guidance, the threshold requirements for the use of the profit-split method are still restrictive. Consequently, it is likely that the profit-split method will rarely be the most appropriate transfer-pricing method. Nevertheless, the residual profit-split method is being considered for BEPS action 1, on the taxation of the digital economy. Two of the proposals under pillar 1 of the Inclusive Framework's 2019 short policy note involve the use of the residual profit-split method to allocate profits. These proposals involve new profit allocation rules that go beyond the arm's-length principle.

scholarly journals Capacity Rights and Full-Cost Transfer Pricing

2020 ◽  
Author(s):  
Sunil Dutta ◽  
Stefan Reichelstein
Keyword(s):  
Transfer Pricing ◽  
Productive Capacity ◽  
Present Value ◽  
Control Rights ◽  
Transfer Payments ◽  
Full Cost ◽  
Initial Acquisition ◽  
Pricing Rules ◽  
Transfer Prices ◽  
Capacity Acquisition

This paper examines the theoretical properties of full-cost transfer prices in multidivisional firms. In our model, divisional managers are responsible for the initial acquisition of productive capacity and the utilization of that capacity in subsequent periods, once operational uncertainty has been resolved. We examine alternative variants of full-cost transfer pricing with the property that the discounted sum of transfer payments is equal to the initial capacity acquisition cost and the present value of all subsequent variable costs of output supplied to a division. Our analysis identifies environments where particular variants of full-cost transfer pricing induce efficiency in both the initial investments and the subsequent output levels. Our findings highlight the need for a proper integration of intracompany pricing rules and divisional control rights over capacity assets. This paper was accepted by Suraj Srinivasan, accounting.

scholarly journals Coordinating a fresh-product supply chain with demand information updating: Hema Fresh O2O platform

2021 ◽  
Author(s):  
Jiawu Peng ◽  
Honglin Yang
Keyword(s):  
Supply Chain ◽  
Risk Sharing ◽  
Lead Time ◽  
Supply Chain Coordination ◽  
Market Demand ◽  
Profit Allocation ◽  
Information Updating ◽  
Demand Information ◽  
Production Quantity ◽  
Theoretical Results

Motivated by Hema Fresh's new-retail case, we study the coordination of a two-echelon fresh-product supply chain consisting of a single supplier and a single retailer. Due to a long production lead time, the supplier has to make production decision in advance based on early demand information. The market demand can be updated during the supplier's production lead time. Hence, the retailer would make order decision according to the latest demand information. Incorporating risk-sharing mechanism of overproduction and overstock, we propose a novel bi-directional risk-sharing contract to coordinate such a supply chain with demand information updating. We construct a two-stage optimization model in which the supplier first decides production quantity, and then the retailer decides final order quantity not exceeding the supplier’s initial production. In both the centralized and decentralized systems, we analytically derive the unique equilibrium of production and order decisions in a Stackelberg supplier-led game. We prove that the proposed contract can realize supply chain perfect coordination and explore how the proposed contract affects the members'decisions. The theoretical results show that, by turning the risk-sharing proportions, the supply chain profit can be arbitrarily split between the members, which is a desired property for supply chain coordination. Compared with the single risk-sharing contract, the proposed contract results in a greater supply chain profit and achieves Pareto improvement for both members. Furthermore, we also explore how the risk preference and negotiating power affect the contract selection and the additional profit allocation of the supply chain. Numerical examples are presented to verify our theoretical results.

scholarly journals Capacity Rights and Full Cost Transfer Pricing

2019 ◽  
Author(s):  
Sunil Dutta ◽  
Stefan Reichelstein
Keyword(s):  
Transfer Pricing ◽  
Full Cost
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