Risks and Transfer Pricing Regulation at the Multinational Enterprises' Routine Units: A Literature Review

Abstract

Multinational enterprises (MNE) allocate valuable intangible assets and strategic functions to the strategy units (usually parent companies) for that allows them to impropriate the majority of the profits there and protect those assets from subsidiaries' risks. The subsidiaries are frequently routine units. Subsequently, the routine units receive low reward, as they perform only routine functions. The OECD transfer pricing guidelines support that practice to the detriment of government budgets and public by considering the routine units as the low-risk ones. This paper reviews the relevant literature and shows that the traditional view of risk and profit allocation between strategy and routine units is inconsistent with their relative risks, resp. with relative risks of MNE's subsidiary and independent company. The long-term perspective of MNEs' members' downside risks provides correct information for transfer pricing regulation and fiscal authorities. Results of this paper enable proposal of the transfer pricing risk analysis targets and tools.

The Effect of Tax, Exchange Rate, and Leverage on Transfer Pricing Policy with Foreign Ownership as Moderating Variables

“…Related party transaction is "a transfer of resources, services or obligations between related parties Transfer pricing is policy from company to undertake in determining the transaction price, whether it is intangible assets, goods, or services. Companies that implement transfer pricing intend to maximize company's profits, but companies that use transfer pricing neutral try to neutrally and appropriately take into account the profits of company branches in other countries (Buus, 2018).…”

Transfer Pricing in V4 Countries

“…Enterprise risk management threats specific risks to the industry, economic environment and how to minimize and eliminate those risks. Buus (2018) in his paper provides a guide for the reassessment of the principles of risk analysis regulation in transfer pricing and highlights how the standard view of risk and profit allocation between strategic and routine units is inconsistent with their relative risks or the relative risks of the multinational's subsidiary and independent company.…”

Untitled

“…The European researchers consider transfer pricing in context of appropriate models, a stock-take of transfer pricing (Kumar et al, 2021), a dynamic dimension of such category (Rogers & Oats, 2022), and risk analysis (Buus, 2018). The given definitions indicate the cross-border dimension of transfer pricing.…”