A Review of the Contemporary Transfer Pricing Literature with Recommendations for Future Research

McAulay, Laurie; Tomkins, Cyril

doi:10.1111/j.1467-8551.1992.tb00039.x

Cited by 22 publications

(12 citation statements)

References 37 publications

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“…The issue of cottage industries was raised throughout the interviews, but no interviewee explained speci cally how the outsourcing arrangement would deal with this issue when directives from the chief executive of cer had failed to do so. In addition, any savings that might be available through outsourcing represent a failure of the internal charging system rather than the bene ts of outsourcing per se since, theoretically, internal charges should be set at levels that motivate economic decisions about internal supply (McAulay and Tomkins, 1992;Kaplan and Atkinson, 1998;Drury, 2000). The assumptions underlying the assertions suggested by interviewee 5 are therefore at best problematic and at worst faulty.…”

Section: Costs and Other Nancial Implicationsmentioning

confidence: 95%

“…There was a perception that the IS department provided a free service, despite an internal charging mechanism and this led to unrealistic demands being made for IS services. The lack of impact of the charging system was explained by the culture within the client company, which was dismissive of the 'wooden dollars' that measured the levels of charge and yet had a perceived zero sum impact on business costs (McAulay and Tomkins, 1992). The outsourcing arrangement brought in a degree of bureaucracy that created distance between users and IS providers that was absent in the relationship built upon internal charging.…”

Section: Personal Consequencesmentioning

confidence: 97%

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The Stakeholder Dimension in Information Systems Evaluation

McAulay

Doherty

Keval

2002

Journal of Information Technology

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This study used an earlier critique of the cultural sciences for exploring the ideological basis for the evaluation of outsourcing. Questionnaire and interview responses are presented. These incorporate a range of evaluative criteria, which together represent an indicative list of the bene ts and risks of outsourcing. The paper initially suggests that different stakeholders might be impacted on in different ways by bene ts and risks. It is suggested that information technology outsourcing evaluation might thus be partial and not neutral in its impact on stakeholders. However, the differences and similarities between stakeholders suggest a subtle interplay of ideological concerns that does not totally deny the interests of all but the dominant stakeholders. Although the evaluation may be partial this does not deny the potential for those who might be presumed to be disadvantaged for making personal gains. However, in making personal gains, an ideology based on economic interests is furthered, thus occluding the opportunity for autonomous and responsible engagement with the process of evaluation.

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Section: Costs and Other Nancial Implicationsmentioning

confidence: 95%

Section: Personal Consequencesmentioning

confidence: 97%

The Stakeholder Dimension in Information Systems Evaluation

McAulay

Doherty

Keval

2002

Journal of Information Technology

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“…Cost-based methods are basically internally determined using available cost data. It is conceded in the literature that these methods are subject to inherent arbitrariness in cost allocation and difficulties in determining a fair profit to add to cost (Thomas 1971;Merville and Petty 1978;MaAulay and Tomkins 1992). Because of this arbitrariness, the se methods provide more room for MNCs to pursue their corporate objectives in maximizing after-tax profits and minimizing operational risks.…”

Section: Tax Dispute Resolution Methodsmentioning

confidence: 99%

International transfer pricing in a developing economy context : perspectives from the taxpayers and the tax authorities

Lo¹

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Doctor of PhilosophySince the 1979 economic reforms, China has been characterized by a rapid increase in international trade and an inflow of foreign direct investment. Foreign investment enterprises (FIEs) play an increasing important role in the Chinese economy and are substantially engaged in transactions with affiliates outside China.Therefore, international transfer pricing in China has become a significant issue.Empirical research on international transfer pricing has focused on multinational corporations (MNCs) operating in developed countries. However, it is difficult to generalize their findings to MNCs operating in developing countries as the business environment of developing countries is quite different from that of developed countries. Existing literature identifies that due to differences in the business environment between developed and developing countries, the tax factors which are important in developed countries should not be over-emphasized in developing countries. Some nontax factors such as foreign exchange control and restrictions on profit repatriation which may not be important in developed countries are nevertheless important in developing countries. However, empirical studies on international transfer pricing in developing countries are relatively scare. Furthermore, there have been no empirical studies that examine the relationships between management's perception of the importance of environmental variables and management's choice of international transfer pricing methods in developing countries, or which analyze the tax and nontax cost trade-off for tax evasion via international transfer pricing in developed or developing countries.The objective of this thesis is to provide a comprehensive empirical study on international transfer pricing in China from the perspectives of both taxpayer and the tax authority. The results of this thesis indicate that the more important the management perceives the interest of local partners and the maintenance of a good relationship with host government to be, the more likely it is that the FIE will adopt a ii market-based transfer pricing method. On the other hand, the more important the management perceives foreign exchange controls in transfer pricing decisions to be, the more likely it is that the FIE will choose a cost-based transfer pricing method.The research results also reveal that based on a tax and non-tax cost trade-off analysis, wholly foreign-owned enterprises, cooperative joint ventures and exportoriented FIEs are more likely to be selected for transfer pricing audits in China than equity joint ventures and domestic -market oriented enterprises. Some explanations for this result are the lack of monitoring by Chinese local partners in certain FIEs and the opportunity for transfer pricing manipulations.The results of this thesis have important policy implications for foreign investors carrying on business in China, the Chinese tax authorities as well as academic researchers. My research results should help foreign investors to have a bett...

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“…However, cost allocation is relatively easy to abuse, and determining a fair profit to add to cost is difficult (MaAulay and Tomkins, 1992;Merville and Petty, 1978;Thomas, 1971). Therefore, companies can make use of cost-based method to manipulate the transfer prices and their profits.…”

Section: Research Hypothesesmentioning

confidence: 99%

“…Market-based methods are based on fair market prices, which are less susceptible to manipulation. Cost-based methods are basically determined by internally generated data, and this is easier to manipulate (MaAulay and Tomkins, 1992;Merville and Petty, 1978;Thomas, 1971;Anthony and Dearden, 1980;Cook, 1995;Granick, 1975). Therefore, companies tend to use cost-based methods to manage their earnings through RPTs.…”

Section: Introductionmentioning

confidence: 99%

The impact of corporate governance on the choice of transfer pricing methods in China

Han¹

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The Impact of Corporate Governance on the Choice of Transfer Pricing Methods in China by HAN Xue Master of PhilosophyRecent scandals involving related party transactions (RPTs) have attracted researchers' and governments' attention. Because imperfections exist in the legislation of RPTs, business groups might abuse transfer pricing of such transactions for certain purposes. These purposes include earnings management of listed companies that seek to attract investors and profit shifting from subsidiaries to parent companies. This study investigates the impact of corporate governance on the choice of transfer pricing methods in China.I classify transfer pricing methods into two major groups (i.e., market-based and cost-based methods). I hypothesize that companies with weak corporate governance are more likely to use cost-based pricing methods, which are regarded as subjective and more easily manipulated. According to previous studies on corporate governance, a smaller board size, CEO-Chairman duality (i.e. the CEO and the Chairman of the company are the same person), and a lower percentage of independent directors on the board are indicators of weak corporate governance. Using data collected from annual reports of Chinese listed firms in the Shanghai and Shenzhen Stock Markets from 2003 to 2005, I find that government-controlled companies are more likely to use market-based methods than others. It is consistent with the hypothesis that ownership has an impact on the choice of transfer pricing methods. The results also show that when the chairman of the board and the CEO of the company is the same person, companies are more likely to use cost-based methods. However, inconsistent with my hypothesis, the results indicate that firms with small boards are more likely to choose cost-based methods than firms with large boards. This study extends prior research on transfer pricing by focusing on the impact of corporate governance. Furthermore, this study suggests that regulators might limit transfer pricing manipulations by stipulating a firm's corporate governance structure. This research also draws both regulators' and investors' attention to the impact of corporate governance on transfer pricing methods.

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A Review of the Contemporary Transfer Pricing Literature with Recommendations for Future Research

Cited by 22 publications

References 37 publications

The Stakeholder Dimension in Information Systems Evaluation

The Stakeholder Dimension in Information Systems Evaluation

International transfer pricing in a developing economy context : perspectives from the taxpayers and the tax authorities

The impact of corporate governance on the choice of transfer pricing methods in China

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