International Transfer Pricing for Goods and Intangible Asset Licenses in a Decentralized Multinational Corporation: Review and Extensions

Abstract:     
We review and extend the core literature on international transfer price manipulation to avoid or evade taxes. Under negotiated transfer pricing with a viable bargaining structure, including performance evaluation disconnected from the transfer price, divisions voluntarily exchange accurate information to obtain firm-wide optimality, a result not dependent on restraint from exercising internal market power. For intangible licenses, a larger optimal profit shift for a given tax rate change strengthens incentives for transfer pricing abuse. In practice, an intangible's arm's length range is viewed as a guideline, a context where incentives for abuse materialize. Transfer pricing for intangibles obliges greater tax authority scrutiny.

Number of Pages in PDF File: 57

Keywords: Negotiated transfer pricing, licensing intangibles, decentralized MNC

JEL Classification: F23, H25, H26, L29, O34

Accepted Paper Series