Transfer pricing: roles and regimes

against a background of rather mixed evidence about transfer pricing practices
in multinational enterprises (mnes) and varying attitudes on the part of
tax authorities, this paper explores how multiple aims in transfer pricing can be
pursued across four different transfer pricing regimes. a mne has a production
subsidiary in one country, from where it sells the produced good locally as well
as to a sales subsidiary in a second country. the latter subsidiary is engaged in
duopolistic competition with a local competitor. the mne has two aims in setting
the transfer price: strategic delegation and tax minimization. we examine
the extent to which the four transfer pricing regimes we set up allow the mne
to pursue these aims. while neither strategic delegation nor tax minimization
will be eliminated, trade-offs are inevitable, albeit to varying degree.

Søren Bo Nielsen
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