Transfer Pricing: Roles and Regimes

22 Pages Posted: 4 Apr 2014

See all articles by Soren Bo Nielsen

Soren Bo Nielsen

Copenhagen Business School - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 10, 2014

Abstract

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.

Keywords: transfer prices, strategic delegation, tax manipulation, MNEs

JEL Classification: H250, F230, H870, M480

Suggested Citation

Nielsen, Soren Bo, Transfer Pricing: Roles and Regimes (March 10, 2014). CESifo Working Paper Series No. 4694. Available at SSRN: https://ssrn.com/abstract=2419928

Soren Bo Nielsen (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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