Designing International Transfer Pricing Systems

Abstract

Two companion articles have considered transfer pricing objectives and factors influencing the designing of these systems. This article, the last in the series, treats the topic of designing transfer pricing systems. Since many multinational firms have subsidiaries in the U.S., it is worthwhile to consider the U.S. Internal Revenue Service regulations regarding transfer pricing. Transfer pricing systems can be designed under a variety of alternative market scenarios. These topics are discussed in the first two sections of the article. The designing of profit‐oriented and cost‐oriented transfer pricing systems are considered in the next two sections. A mention of methods for selecting transfer pricing systems concludes the article.