Research on the strategies of international transfer pricing for loss-allowed multi-national corporations

Abstract

By loss-allowing the two-sector profit model was extended and the strategies of international transfer pricing for multi-national corporations under centralized-decision, tariff, income tax, exchange rate and tax credit were discussed. It was discovered that the profit maximization of multi-national corporations corresponds to the transferring price at the break-even point of the branch when the income tax rate of the headquarter is less than that of the branch and the relative difference of the income tax rates is more than the tariff rate if the provisions of the tax law “the income tax is zero when taxable income is negative”. It was concluded that the generally accepted idea “under the high transfer pricing strategy, theoretically the higher the transferring price, the more profit of a multi-national corporation” is inaccurate. The research clarified the error of the relative theories.