Can Transfer Pricing System Integration Be Successful? Yes, it Can!

Abstract

This paper shifts the approach of transfer pricing research from a traditional transaction-based focus to a focus on the overall transfer pricing system. More precisely, we investigate the relationship between the integration of the transfer pricing system into the management control system, an enabling use of the transfer pricing system and the success of the transfer pricing system. Results from structural equation modeling using the partial least squares technique indicate that the level of transfer pricing system integration is significantly related to its success. This relationship is mediated through an enabling use of the transfer pricing system as indicated by the variables repair and internal transparency. Therefore, based on our results, we recommend strong integration of the transfer pricing system into the management control system. However, the users of highly integrated transfer pricing systems need to be able to truly understand the transfer pricing system and to be able to initiate revisions to it in the event of fundamental problems.