Transfer pricing practices in multinational corporations and their effects on developing countries' tax revenue: a systematic literature review

Abstract

PurposeFor many global firms and corporate oligopolies, transfer pricing is essential. The transfer pricing literature as it is currently written is succinctly summarized in this study. The authors offer a thorough analysis of transfer pricing research in this study. This review sheds light on the top researchers, approaches, conclusions, theoretical and empirical gaps, and upcoming issues of transfer pricing research over the previous nine years through a methodical analysis of 29 research publications from the Scopus database (2014–2022). To help graduate students pursue further degrees in this area, such as a master's, thesis or PhD, this study will highlight five research issues.Design/methodology/approachThis essay looks at five significant areas of tax avoidance and transfer pricing research. Some of these issues include determining the impact of transfer pricing regulations on various types of multinational corporations, assessing the effectiveness of transfer pricing regulations in preventing tax evasion, examining various policy options and determining the impact of transfer pricing on other economic outcomes using a systematic literature review.FindingsThe findings of this review demonstrate the need for transfer pricing research to look more closely at transfer pricing as a tool for business in addition to compliance and tax management.Originality/valueThis analysis concludes with future directions for transfer pricing research.

Conceptualizing the MNEs Transfer Pricing Behavior: Indonesian Tax Authority Perspective

“…The interview findings underscore that multinational enterprises are primarily motivated to engage in transfer pricing practices for revenue optimization, corporate profit allocation, and cost optimization. This aligns with previous studies conducted by Zvarikova, & Kovalova, 2021;Karla & Afzal (2023) indicating that transfer pricing practices serve tax purposes as well as tax planning or avoidance through related parties. From the perspective of tax authorities, the potential for profit shifting via transfer pricing among related parties still exists.…”

Transfer Pricing at Multinational Corporate: A Literature Review Approach

“…Transfer pricing is recognized as a complex concept when determining the prices of goods and services exchanged between related businesses, particularly subsidiaries of multinational corporations (MNCs). It entails determining the prices for those transactions, which may affect how profits and tax obligations are distributed across several countries (Kalra & Afzal, 2023). Transfer pricing also illustrates how Multinational Enterprises (MNEs) have an incentive to manipulate internal transfer prices to avoid paying taxes as they actively participate in cross-border intercompany transactions (Choi et al, 2020).…”

“…It implies that the costs utilized in cross-company transactions ought to be equivalent to what unrelated parties would have agreed upon in a comparable situation. To put it another way, transfer pricing has to be determined as though all parties were independent and conducting business at arm's length (Kalra & Afzal, 2023). Research on the topic of transfer pricing has been widely examined by practitioners and academics, including Kohlhase and Wielhouwer (2023), Amidu et al (2019), Choi et al (2020), Steen et al (2022, Sari et al (2020), Hummel et al(2019), Devita and Solikha (2021).…”