Examining the role of transfer pricing as a strategy for multinational firms

Abstract

In contrast to a purely tax-driven mechanism, international transfer pricing can be considered as a means to accomplish corporate objectives and thus create strategic consequences. This paper examines the results of a survey of executives of US-based multinational firms who describe the international transfer pricing objectives and strategies of their firms. Results indicate that executives are not solely focused on taxation issues as the primary objective of international transfer pricing. Multinationals employ transfer pricing to assist in achieving competitive advantage and other corporate objectives as well. This study investigates the influence of transfer pricing on corporate performance and the link involving the effectiveness of transfer pricing in accomplishing objectives. In general, executives perceive that transfer pricing does influence measures of corporate performance. This is supported by the finding that transfer pricing also contributes toward achieving objectives.