Transfer Pricing – Business Incentives, International Taxation and Corporate Law

19 Pages Posted: 24 Jan 2011 Last revised: 31 Oct 2011

See all articles by Wolfgang Schoen

Wolfgang Schoen

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law

Date Written: January 2011

Abstract

Transfer pricing is relevant in three different contexts: From a managerial perspective, intra-firm transfer prices are employed to set incentives for sub-divisional managers to enhance efficient allocation of resources. From an international tax perspective, transfer pricing rules under the arm's length standard serve as a means to allocate profits to corporate entities within a multinational enterprise and to allocate taxing rights to the involved jurisdictions. From a corporate law perspective, transfer prices within a group are controlled in order to avoid asset diversion by related-party transactions ("tunneling"). This article shows the interaction between these three perspectives. It pleads for a deviation from the arm's length standard: source countries should tax profits derived by local group companies under managerial transfer pricing and additionally tax rents derived by foreign companies from intra-firm intangibles and intra-firm specific investment. Corporate law requirements hardly pre-empt this shift away from the arm's length standard. Finally, this concept is applied to some widely discussed court cases on transfer pricing.

Keywords: Transfer Pricing, International Taxation, Related Party Transactions, Multinational Enterprises, Corporate Groups, Taxing Rights

Suggested Citation

Schön, Wolfgang, Transfer Pricing – Business Incentives, International Taxation and Corporate Law (January 2011). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2011-05. Available at SSRN: https://ssrn.com/abstract=1746063 or http://dx.doi.org/10.2139/ssrn.1746063

Wolfgang Schön (Contact Author)

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law ( email )

Marstallplatz 1
Munich, 80539
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
766
Abstract Views
3,154
rank
32,926
PlumX Metrics