scholarly journals TRANSFER PRICING FOR COORDINATION AND PROFIT ALLOCATION

2012 ◽  
Vol 01 (06) ◽  
pp. 07-26
Author(s):  
Jan Thomas Martini
Keyword(s):  
Transfer Pricing ◽  
Profit Center ◽  
Profit Allocation ◽  
Arm’S Length Principle ◽  
Transfer Prices ◽  
One Step ◽  
Minority Interests ◽  
Pricing Schemes ◽  
Positive Effect ◽  
Central Management

This paper examines coordination and profit allocation in a profit-center organization using a single transfer price. The model includes compensations, taxes, and minority interests of two divisions deciding on capacity and sales. The analysis covers arm’s length transfer prices which are either administered by central management or negotiated by the divisions. Administered transfer prices refer to past transactions and therefore maximize firm-wide profit net of divisional compensations, taxes, and minority profit shares only for given decentralized decisions. From an ex-ante perspective, it is shown that adverse effects on coordination may result in inefficient divisional profits of which all stakeholders suffer. We motivate a positive effect of advance pricing agreements, intra-firm guidelines, and restrictive treatments of changes in the firm’s accounting policy. By contrast, negotiations ignore compensations, taxes, and minority shares but yield efficient divisional profits. Negotiations seem compelling as they perfectly reflect the arm’s length principle. Moreover, common practices such as arbitration or one-step pricing schemes allow the firm to engage in manipulation at the expense of other stakeholders.

scholarly journals DEVELOPMENT OF TRANSFER PRICING IN THE CONDITIONS OF GLOBALIZATION AND WAYS TO INCREASE THE EFFICIENCY OF THE TRANSFER PRICE REGIME

2021 ◽  
Author(s):  
Inna Korin
Keyword(s):  
Global Economy ◽  
Transfer Pricing ◽  
Practical Significance ◽  
Tax Havens ◽  
Economic Relations ◽  
Arm’S Length Principle ◽  
Financial Interests ◽  
Business Confidence ◽  
Market Relations ◽  
Pricing Schemes

The mechanism of enterprises pricing for moving the main share of profits abroad to low-tax havens has been investigated. The analysis of the existing conflict of interest between MNEs is carried out, they seek to obtain super-profits and the fiscal authorities, must ensure proper control over taxation by introducing the arm's length principle. The article shows the complexity and versatility of the rules of tax control over transfer pricing. The influence of the main factors on the current methods of taxation of enterprises is determined. The nature of transfer pricing risks is characterized and the main tasks of the tax authorities are identified, which is to maximize results, while ensuring business confidence in the tax system. It is shown that transfer pricing schemes are carried out using various techniques of aggressive tax planning, requiring the introduction of additional countermeasures. In the study of transfer pricing in the context of globalization and transnationalization of international relations, it was found that due to the processes of globalization, intersectoral pricing has become a daily necessity for the vast majority of enterprises. The transfer pricing mechanism is the basis of the latest approaches to pricing in the global economy, thereby distorting the level of world fair prices. In modern conditions of development and complication of market relations, there are rapid processes of strengthening foreign economic relations of domestic economic entities and the total manifestation of globalization processes. Due to the fact that globalization is gaining momentum, it is becoming increasingly difficult to maintain the current methods of taxation of TNCs operating in different tax jurisdictions. Transfer pricing is one of the most important aspects of tax minimization in multinational companies. At the same time, the financial interests of the state are expressed in the amount of tax revenues, the solution of this contradiction makes it necessary to improve the tax regulation of transfer pricing between interdependent persons. The practical significance of the research results obtained lies in the possibility of their use in the formation of an appropriate legislative and regulatory framework.

scholarly journals Revised OECD Transfer pricing Guidelines and the Czech tax policy

2011 ◽  
Vol 59 (4) ◽  
pp. 301-308
Author(s):  
Veronika Solilová
Keyword(s):  
Czech Republic ◽  
Tax Policy ◽  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Practical Application ◽  
The Czech Republic ◽  
Arm’S Length Principle ◽  
Transfer Prices

In applying the international principles to the taxation of Multinational Enterprises, one of the most difficult issues that have arisen is the establishment for tax purposes of appropriate transfer prices. Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions. The Committee on Fiscal Affairs, which is the main tax policy body of the OECD, has issued a number of reports relating to the transfer pricing issues. The most important are the Transfer pricing Guidelines for multinational enterprises and tax authorities which was published in 1995. These Guidelines focus on the application of the arm’s length principle to evaluate the transfer pricing of associated enterprises, the analysis of the methods for evaluating whether the conditions of commercial and financial relations within Multinational Enterprises satisfy the arm’s length principle and discussion of the practical application of those methods. Simply, these Guidelines focus on the main issues of principle that arise in the transfer pricing area. The Committee on Fiscal Affairs continues its work in this area, on 22 July 2010 approved and released the proposed revisions to Chaps. I through III of these Guidelines and simultaneously published a new Chap. IX related to business restructuring. The revisions are the result of several years of work on comparability and the use of profit-based methods. The revised text will have a significant impact on the application of transfer pricing analysis and transfer pricing methods. The paper is focused on significant changes of newly approved Guidelines with aim to evaluate how the Czech Republic began applying the principles set out in the revised text of these Guidelines.

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 Tax-Compliant Transfer Pricing and Responsibility Accounting

2009 ◽  
Vol 21 (1) ◽  
pp. 151-178 ◽  
Author(s):  
Martine Cools ◽  
Regine Slagmulder
Keyword(s):  
Transfer Pricing ◽  
Multinational Enterprise ◽  
Tax Compliance ◽  
Management Control ◽  
Environmental Pressures ◽  
Business Decisions ◽  
Profit Center ◽  
Transfer Prices ◽  
Profit Centers ◽  
Responsibility Accounting

ABSTRACT: While the accounting literature has extensively studied the role of transfer pricing (TP) within the management control system (MCS) of companies, MCS issues related to cross-border transfers have received far less attention. In this case study, we investigate how TP tax compliance influences responsibility accounting when one multinational enterprise (MNE) uses a single set of transfer prices for both tax compliance and management control. First, the MNE eliminated TP negotiation, leading to psychologically disagreeable and sometimes also economically harmful situations. Second, the firm administratively simplified the determination of profit margins to such an extent that it could lead to suboptimal business decisions. Third, tax compliance induced a profit-center designation for business units that were primarily responsible for costs or revenues. The firm first coped with a mixed treatment of these responsibility centers, allowing them to be profit centers for tax purposes and cost or revenue centers for MCS purposes. Later, top management became convinced of the benefits of a profit-center treatment for all purposes and started to convert the pro forma profit centers into real profit centers. Overall, this study contributes to the stream of research documenting and explaining how MCSs are designed and used under environmental pressures.

scholarly journals Transfer pricing and safe harbours

2013 ◽  
Vol 61 (7) ◽  
pp. 2757-2768 ◽  
Author(s):  
Veronika Solilová
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Competent Authority ◽  
Partial Solution ◽  
The Czech Republic ◽  
Advantages And Disadvantages ◽  
Arm’S Length Principle ◽  
Transfer Prices ◽  
Audit Standards ◽  
Safe Harbours

Transfer prices are significant for both taxpayers and tax administrations because they determine in large part taxable profits of associated enterprises in different tax jurisdictions. Moreover, in the context of taxation, transfer prices must be complied with the arm’s length principle. However, Multinational Enterprises have been faced daily by conflicting rules and approaches to applying the arm’s length principle, burdensome documentation requirements, inconsistent audit standards and unpredictable competent authority outcomes. Therefore, the Committee on Fiscal Affairs launched another project on the administrative aspects of transfer pricing in 2010. On 16 May 2013 as a partial solution of this project was approved by the OECD Council the Revised Section E on Safe Harbours in Chapter IV of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities. The paper is focused on significant changes of newly approved chapter IV of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities, further on analysis of practice in this area, on advantages and disadvantages of safe harbours for taxpayers and competent authorities with aim to suggest recommendations on use of safe harbours in the Czech Republic.

scholarly journals Transfer Pricing in International Markets: Problems of Information Support

2019 ◽  
Vol 8 (2) ◽  
pp. 3845-3849
Keyword(s):  
Transfer Pricing ◽  
International Markets ◽  
Financial Accounting ◽  
Information Support ◽  
Main Principle ◽  
Arm’S Length Principle ◽  
Pricing System ◽  
Transfer Prices ◽  
Document Flow

the article characterizes the transfer pricing in international markets, analyzes the “arm’s length principle” as the main principle of taxation of interdependent companies, the motivation of transfer pricing participants, the main features of the transfer pricing practice, and the system regulating the transfer pricing at the interstate level. Based on analyzing various aspects of information support for the transfer pricing system, it has been proved that the best approach to improving it is to establish a permanent document flow to substantiate the level of transfer prices and to further draw up management, financial and tax reports. The novelty of the study consists in the recommendations on the sequence of actions to form a unified system of document flow, and management and financial accounting that would provide management with the information on all transactions with affiliates

scholarly journals Theoretical and Practical Assessments of Transfer Prices. Legal Evidence from Romanian Case Law

2020 ◽  
Vol 26 (40) ◽  
pp. 1-18
Author(s):  
Florin Cornel Dumiter ◽  
Ștefania Amalia Jimon
Keyword(s):  
Transfer Pricing ◽  
Case Law ◽  
International Taxation ◽  
Fine Tuning ◽  
International Regulation ◽  
Economic Implications ◽  
Legal Evidence ◽  
Permanent Establishment ◽  
Arm’S Length Principle ◽  
Transfer Prices

AbstractTransfer pricing represents the mainstream agenda in the light of tax law, lato sensu, and international taxation, stricto sensu. At the international level, there can be an emphasis on several problems related to taxation: double taxation, double non – taxation, permanent establishment, business profits, residence criteria, arm's length principle, mutual agreement procedure, dispute resolution of tax conflicts. However, the problem of transfer pricing has more profound judicial and economic implications. The main objective of this paper is to evaluate and assess the underlying features and characteristics of transfer prices in the economical and judicial actual context. The operational objectives are related to a quid pro quo analysis regarding the fine-tuning aspects of transfer pricing in the digital taxation era. The case law presented in this article tackles the main problems of applying transfer pricing international regulation upon Romanian tax jurisprudence. The conclusion of this article highlights the need, mutadis mutandis, for a tax policy agenda revealing a strengthened fiscal and financial environment towards the creation of a new proper fiscal space.

scholarly journals Substitution across profit shifting methods and the impact on thin capitalization rules

2021 ◽  
Author(s):  
Gideon Goerdt ◽  
Wolfgang Eggert
Keyword(s):  
Multinational Firms ◽  
Transfer Pricing ◽  
Multinational Firm ◽  
Profit Shifting ◽  
Goods And Services ◽  
Internal Goods ◽  
Transfer Prices ◽  
Debt Shifting ◽  
The Impact ◽  
Thin Capitalization

AbstractThin capitalization rules limit firms’ ability to deduct internal interest payments from taxable income, thereby restricting debt shifting activities of multinational firms. Since multinational firms can limit their tax liability in several ways, regulation of debt shifting may have an impact on other profit shifting methods. We therefore provide a model in which a multinational firm can shift profits out of a host country by issuing internal debt from an entity located in a tax haven and by manipulating transfer prices on internal goods and services. The focus of this paper is the analysis of regulatory incentives, $$(i)$$ ( i ) if a multinational firm treats debt shifting and transfer pricing as substitutes or $$(ii)$$ ( i i ) if the methods are not directly connected. The results provide a new aspect for why hybrid thin capitalization rules are used. Our discussion in this paper explains why hybrid rules can result in improvements in welfare if multinational firms treat methods of profit shifting as substitutes.

scholarly journals Pengaruh Mekanisme Bonus, Exchange Rate, Intangible Assets, dan Kompensasi Rugi Fiskal Terhadap Keputusan Perusahaan Melakukan Transfer Pricing

2020 ◽  
Vol 2 (3) ◽  
pp. 3125-3143
Author(s):  
Weni Avri Rahman ◽  
Charoline Cheisviyanny
Keyword(s):  
Exchange Rate ◽  
Sampling Method ◽  
Intangible Assets ◽  
Stock Exchange ◽  
Transfer Pricing ◽  
Secondary Data ◽  
Total Sample ◽  
Analysis Method ◽  
Loss Compensation ◽  
Positive Effect

This research aims to examine to analyze the effect of bonus scheme, exchange rate, intangible assets, and fiscal loss compensation on the company’s decision to do transfer pricing. The population in this research are all of the companies listed in Indonesia Stock Exchange (IDX) in 2014 until 2018. The sample of study was determined by using purposive sampling method, and that total sample 93 companies. The data used secondary data and collected by documentation at www.idx.com. This research use logistic regression analysis as analysis method. The result of analysis in this research showed that bonus scheme, exchange rate, and fiscal loss compensation had no effect on the company’s decision to do transfer pricing. Intangible Assets had a positive effect on the company’s decision to do transfer pricing

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