Integrating Managerial and Tax Objectives in Transfer Pricing

Baldenius, Tim; Melumad, Nahum D.; Reichelstein, Stefan

doi:10.2139/ssrn.408260

Cited by 56 publications

(93 citation statements)

References 23 publications

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“…The analysis section presents in a time-ordered manner the changes in the tax environment and the firm-specific MCS variables. This is 4 Baldenius et al 2004 stress that most MNEs use the same set of books for tax and managerial purposes.…”

Section: The Tax Environmentmentioning

confidence: 99%

“…Most of these studies assume MNEs to use one set of transfer pricing books (Halpirin & Srinidhi, 1991;Elitzur & Mintz, 1996;Schjelderup & Sorgard, 1997;Sansing, 1999;Haufler & Schjelderup, 2000;Smith, 2002a): they derive the optimal transfer price for each intrafirm transaction that simultaneously serves tax and performance evaluation goals. In contrast, a limited number of recent studies (Baldenius et al, 2004;Smith, 2002b;Hyde & Choe, 2005) model two distinct transfer prices, one to serve evaluation purposes and the other one to serve tax purposes. In practice, most MNEs insist on using one set of prices, 'both for simplicity and in order to avoid the possibility that multiple transfer prices become evidence of manipulation in any disputes with the tax authorities' (Baldenius et al, 2004, 592;Ernst & Young, 2001.…”

Section: Tax Compliancementioning

confidence: 99%

“…studies tend to take compliance with the tax rules as given when seeking to identify the optimal internal transfer price (e.g. Baldenius et al, 2004), the current study internalises the tax compliance process and investigates the MCS implications that follow from preparing the firm for tax compliance.…”

Section: Tax Compliancementioning

confidence: 99%

“…Tax compliance has recently gained in importance due to the introduction of stricter transfer pricing tax laws by fiscal authorities worldwide. In contrast to a number of recent analytical studies calculating transfer prices that reconcile managerial and tax objectives under certain static circumstances (Halpirin & Srinidhi, 1991;Narayanan & Smith, 2000;Hyde, 2002;Baldenius, Melumad & Reichelstein, 2004;Hyde & Choe, 2005), this is an empirical investigation which allows the researchers to view the 'process' of inter-action over time (Swieringa & Waterhouse, 1982;Spicer, 1988, Colbert & Spicer, 1995…”

Section: Introductionmentioning

confidence: 99%

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Management control in the transfer pricing tax compliant multinational enterprise

Cools¹,

Emmanuel

Jorissen

2008

Accounting, Organizations and Society

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To understand the design and use of management control systems (MCSs) in tax compliant multinational enterprises (MNE), an in-depth case study was undertaken. The selected MNE chose to use the same transfer prices for tax compliance and internal management purposes. We argue that modifications in the MCS cannot be understood without an appreciation of the corporate approach towards fiscal transfer pricing compliance.Over a sustained period of time, the effect on organising, planning , evaluation and reward controls are traced suggesting a more coercive use of the MCS. Three propositions are offered to guide future research in this complex area.

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Section: The Tax Environmentmentioning

confidence: 99%

Section: Tax Compliancementioning

confidence: 99%

Section: Tax Compliancementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Management control in the transfer pricing tax compliant multinational enterprise

Cools¹,

Emmanuel

Jorissen

2008

Accounting, Organizations and Society

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“…Upstream firm 2 supplies to downstream firm j = n + 1, its own affiliate, and unrelated downstream buyers j = n + 2, ..., 2n. 5 We denote the set of downstream firms by N = {1, ..., 2n}. The downstream market's (inverse) demand is given by p = a − Y with a > c where Y := ∑ j∈N y j and y j is the quantity purchased by downstream firm j.…”

Section: The Modelmentioning

confidence: 99%

The Arm’s Length Principle and Tacit Collusion

Choe

Matsushima

2012

SSRN Journal

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The arm's length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm's length with each other. This paper examines the effect of the arm's length principle on dynamic competition in imperfectly competitive markets. It is shown that the arm's length principle renders tacit collusion more stable. This is true whether firms have exclusive dealings with unrelated parties or compete for the demand from unrelated parties. JEL classification numbers: D43, L13, L41

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Impact of transfer pricing methods for tax purposes on supply chain performance under demand uncertainty

Huh¹,

Park²

2013

Naval Research Logistics

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Transfer pricing refers to the pricing of an intermediate product or service within a firm. This product or service is transferred between two divisions of the firm. Thus, transfer pricing is closely related to the allocation of profits in a supply chain. Motivated by the significant impact of transfer pricing methods for tax purposes on operational decisions and the corresponding profits of a supply chain, in this article, we study a decentralized supply chain of a multinational firm consisting of two divisions: a manufacturing division and a retail division. These two divisions are located in different countries under demand uncertainty. The retail division orders an intermediate product from the upstream manufacturing division and sets the retail price under random customer demand. The manufacturing division accepts or rejects the retail division's order. We specifically consider two commonly used transfer pricing methods for tax purposes: the cost‐plus method and the resale‐price method. We compare the supply chain profits under these two methods. Based on the newsvendor framework, our analysis shows that the cost‐plus method tends to allocate a higher percentage of profit to the retail division, whereas the resale‐price method tends to achieve a higher firm‐wide profit. However, as the variability of demand increases, our numerical study suggests that the firm‐wide and divisional profits tend to be higher under the cost‐plus method than they are under the resale‐price method. © 2013 Wiley Periodicals, Inc. Naval Research Logistics, 2013

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Integrating Managerial and Tax Objectives in Transfer Pricing

Cited by 56 publications

References 23 publications

Management control in the transfer pricing tax compliant multinational enterprise

Management control in the transfer pricing tax compliant multinational enterprise

The Arm’s Length Principle and Tacit Collusion

Impact of transfer pricing methods for tax purposes on supply chain performance under demand uncertainty

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