Transfer pricing: aligning the research agenda to organizational reality

Abstract

Purpose – The purpose of this paper is to critically review the empirical transfer pricing literature as a means of determining the agenda for future research. Design/methodology/approach – The review is carried out primarily by searching databases, academic journals and books. Second, professional surveys are reviewed to inform the development of research ideas. Findings – The understanding and ability to explain international transfer pricing in practice remain limited despite a rapidly increasing tax regulatory pressure on multinational enterprises. One important explanatory factor is that accounting and tax research has not been integrated to a sufficient extent. As a consequence, rather isolated research streams and knowledge building have taken place, failing to leverage the synergies of a combined research approach. Research limitations/implications – A stronger emphasis on the outcome of specific transfer pricing system designs would improve the literature’s current status in terms of whether the objectives aimed at by the system are actually achieved. A new framework and promising research questions are proposed to guide future work on this issue. Practical implications – The proposed framework may serve as guidance for practitioners seeking to assess the performance of specific transfer pricing systems and potentially provide directions for refinement of current system designs when dysfunctional consequences are identified. Originality/value – Previous transfer pricing research has taken a rather isolated approach. This paper is an attempt to guide future transfer pricing research towards an inter-disciplinary approach.

Tax governance: the balance between tax regulatory requirements and societal expectations

“…The paper responds to recent calls for studies into the increasingly important role of tax risk management and international transfer pricing in MNEs (Cools and Emmanuel, 2007;Cools et al, 2008;Cools and Slagmulder, 2009;Jost et al, 2014;Plesner Rossing and Rohde, 2014;Wunder, 2009). Different from most research on transfer pricing and corporate taxation, this study seeks to enhance the current understanding of the forces that may escalate legitimacy/reputational risks when coalitions of NGOs, politicians, consumers, and the media question MNE tax behavior.…”

“…Despite a significant amount of empirical work, the corporate tax and transfer pricing literature does not provide an understanding of how MNEs and their transfer pricing practices are impacted by stakeholders, aside from tax authorities. Instead, the literature treats international transfer pricing as a tool for tax optimization (see Hanlon and Heitzman, 2010;Plesner Rossing and Rohde, 2014;Sansing, 2014, for reviews) or, more recently, as an issue of complying with technical tax regulatory standards, particularly the arm's length principle (Cools et al, 2008;Cools and Slagmulder, 2009;Jost et al, 2014;Plesner Rossing, 2013).…”

Transfer Pricing and Mangerial Ownership Against Tax Avoidance in Manufacture Companies on The Indonesia Stock Exchange

“…To maximize global profits and tax minimization, multinational companies have used several tax avoidance mechanisms as a way to shift taxable income from high tax jurisdictions to low tax jurisdictions to reduce corporate tax obligations. These mechanisms include transfer pricing, capitalization, tax haven utilization, debt financing structures, contracts, asset location strategies, and overhead costs [8].…”

Moderation of Financial Constraints in Transfer Pricing Aggressiveness, Income Smoothing, and Managerial Ability to Avoid Taxation

“…Based on agency theory, there is a conflict of interest from the manager as an agent which makes the basis for managers to make decisions that are often different from the interests of the principal. When a company decides whether to invest at home or abroad, it will consider profits, tariff rates, tax laws, and regulations to achieve the goal of minimizing taxes globally and maximizing profits by taking advantage of the benefits of low tax rates and tax-free policies from the host country (Bartelsman & Beetsma, 2003;Olibe & Rezaee, 2008;Borkowski, 2010 (Grubert & Mutti, 1991;Dharmapala, 2008;Gravelle, 2009;Janský, P., Prats & Aid, 2013;Plesner Rossing & Rohde, 2014). Transactions between related parties located in different tax jurisdictions provide ample opportunities for tax evasion.…”