International Transfer Pricing Research Articles

Conceptualizing the MNEs Transfer Pricing Behavior: Indonesian Tax Authority Perspective

Indonesian tax authorities currently encounter a lack of cooperative compliance among companies engaged in transfer pricing practices with their affiliated entities across borders. Transfer pricing is commonly associated with tax purposes, such as tax planning or avoidance, which is considered standard practice for business entities. Hence, there is a significant necessity to assess and evaluate the prevalence of tax planning or avoidance through transfer pricing in multinational enterprises operating in Indonesia. To gauge the extent of transfer pricing used for tax avoidance purposes, this study examines the perspective of tax authorities on companies' transfer pricing optimization behavior. Employing a qualitative approach, the study aims to comprehend the utilization of transfer pricing and its implications. The findings provide insights into transfer pricing behavior within companies over time. According to tax authorities, companies are motivated by the benefits of transfer pricing, including revenue optimization, corporate profit allocation, and cost optimization. However, these practices are influenced by various factors that facilitate or constrain transfer pricing activities. Multinational enterprises demonstrate limited awareness of normative beliefs regarding international and domestic transfer pricing regulations. Notably, companies affiliated with large multinational enterprises, possessing a strong understanding of transfer pricing, exhibit a high potential for tax planning or avoidance through transfer pricing arrangements with related parties. These findings contribute to the existing body of research on transfer pricing practices from the perspective of tax authorities as part of the Indonesian government.

Transfer Pricing Regime under the Indian Income Tax Act 1961 and Income Tax Rules 1962 – Inadequacies, Deficiencies, Problems and Proposed Solutions

The author makes a case for the inclusion of the OECD Guidelines into the Indian transfer pricing regime. The article takes a bird’s eye view of the Indian transfer pricing regime and therefore undertakes a high-level analysis. In doing so, it brings to the fore the shortcomings in the Indian regime for consideration by the tax policymakers – ministry and revenue officials who frame India’s international tax and transfer pricing policies. For this purpose, the author adopts the perspective of the revenue/tax authorities.

Manipulation of Transfer Pricing Rules by Multinational Enterprises in Developing Countries: The Challenges and Solutions

Domestic revenue mobilisation has become a topical issue in developing countries, and their capacity to regulate multinational enterprises (MNE) transactions to minimise Base Erosion and Profit Shifting (BEPS) remains a formidable task. Faced with legislative deficiencies, implementation incapacities, and being at the nascent stages of adopting transfer pricing (TP) regulation, developing countries have remained at the mercy of MNEs’ BEPS practices. The complexity and intricacies of intragroup transactions have an impact on profit allocation, thus affecting the distribution of taxing rights across countries where these MNEs operate. This study explores the regulatory policies toward international transfer pricing in the context of developing nations and the associated challenges. The paper proffers possible solutions to improve TP regulation and implementation. Specifically, the paper centres its attention on Zimbabwe, one of the developing nations that have implemented transfer pricing legislation in recent years. Mitigating the impact of BEPS through efforts, such as regulating and managing TP would avail potential substantial finance to shift developing countries from aid dependence to self-sustenance, yet these efforts face a lot of hurdles. Research that contributes to knowledge development in the area, evaluates the hurdles faced and contributes to policy and implementation improvements becomes vital. This study found that Zimbabwe is faced with challenges such as lack of legislative clarity, lack of comparability data, shortage of resources, lack of capacity and dysfunctional double taxation agreements in dealing with transfer pricing. The study recommends Zimbabwe should improve legislation, create TP databases, improve revenue authorities’ capacity, and increase stakeholder awareness of TP.

Canada Consults on “Modernizing” Its Transfer Pricing Rules – What’s in (the) Store?

In the summer of 2023, Canadian tax and finance authorities conducted a consultation on changes to Canada’s transfer pricing legislation. These changes reflect both international transfer pricing’s increasing emphasis on “economic substance” following from continuing work conducted by the OECD and perceived limitations of Canada’s existing transfer pricing legislation as interpreted in important Canadian court cases. Among other things, the changes would empower the tax authorities and courts not to recognize taxpayers’ transactions in favour of alternatives considered to more accurately reflect the economic features of taxpayers’ circumstances.

A Comparative Analysis of Legal Measures and Policy Recommendations for MNCs Regarding Transfer Pricing

As the global economy continues to expand, the rapid expansion of multinational corporations (MNCs) has spawned tax avoidance issues that must be resolved. This paper analyzes the challenges MNCs face with transfer pricing and investigates the legal implications of these practices under international law. The study examines transfer pricing hazards, U.S. legislative measures pertaining to transfer pricing, and the primary characteristics of U.S. tax audits. In addition, the paper provides recommendations for strengthening the international legal framework by highlighting the need for enhanced international tax supervision, cooperation, and transfer pricing management expertise. In order to achieve a balance between export tax revenue interests and sustainable development, the paper also advocates promoting innovation and providing tax assistance to global MNCs. It highlights the importance of MNCs adhering to international tax regulations in order to avoid potential tax penalties and reputational harm.

Courts Again Side with Israeli Taxpayer in Transfer Pricing Business Restructuring Ruling

In April 2019, the authors published in the International Transfer Pricing Journal an article that addressed, inter alia, OECD and Israeli principles of business restructuring, focusing on the various resulting models, such as outright sale and licensing structures. Subsequently, however, the authors published a revisit to this topic in October 2020 as an Israeli tax court reached a legal countering decision. The current article considers this detailed background as well as the most recent court developments in this regard in a May 2022 ruling.

Is the Settlement of Rio Tinto’s “Marketing Hub” Transfer Pricing Dispute the Shape of Things to Come?

In July 2022 the Australian Taxation Office (ATO) and Rio Tinto Ltd (Rio Tinto) announced they had reached a settlement that brought to an end all tax disputes, including a long-standing dispute in relation to Rio Tinto’s Singapore “marketing hub”. The settlement involved payment of almost AUD 1 billion by Rio Tinto to the ATO. That followed a settlement in late 2018 between the ATO and BHP Billiton Ltd concerning BHP’s Singapore marketing hub and requiring the payment of AUD 529 million by BHP. The settlements confirm that the ATO is continuing to protect the Australian tax base by making sure taxpayers comply with their international transfer pricing obligations. The authors examine the Rio Tinto and BHP settlements and the tax treatment of marketing hubs, and make a number of observations on the implications of the settlements for transfer pricing in Australia.

Transfer pricing optimization in the developing economy: A tax consultant’s view

Transfer pricing (TP) is usually used by multinational companies (MNCs) to minimize corporate tax liabilities, using affiliates. This practice involves tax consultants optimizing transfer pricing without violating the tax regulation. Tax consultants contribute to supervising companies to make transparent documentation and transfer pricing policies. This qualitative research explores the tax consultant perspective on companies’ transfer pricing optimization behaviour using planned behaviour theory. Data was collected through interviews, documentation, and observations. This research involves 5 transfer-pricing experts that have experience in transfer pricing issues, in 5 interview sessions. Data triangulation among data sources, written feedback, online interviews, and documentation review was used to ensure validity and reliability. The finding gives an understanding that MNCs in Indonesia optimize transfer pricing by the perception of TP benefit specifically for corporate profit allocation among parties in a different taxation area and tax payment minimization. While business norms, environments, and international regulations of transfer pricing are not fully considered by MNCs in Indonesia. International transfer pricing regulations are not considered the organizational perception of this TP practice. This finding enriches the discussion on the tax consultant perspective, specifically companies’ transfer pricing optimization behaviour to improve guidelines on the TP arm’s length principle (Djaja & Sonny, 2021; Sari, 2021)

Tax differences and international location strategies

This paper examines the influence of tax rate differences and international transfer pricing regulations on the profit-maximizing location strategies of a multinational firm (MNF). We show how a MNF that sells its products in multiple markets and manufactures multiple inputs used for its own production can optimize its tax strategy by jointly selecting the location of input production and the transfer pricing method. We find that a production technology with multiple complementary inputs results in a close connection between national and international transfer prices. Selecting different location choices enables the MNF to base international transfer prices on different arm’s length standards. The optimal location strategy and transfer pricing approach balances the gains from profit-shifting to the low-tax country with the losses that occur due to distorted quantity choices. The MNF’s trade-off between the gains or losses can be moderated by adjusting domestic transfer prices for transactions between the divisions in the high-tax country.

Resolution of International Transfer Pricing Disputes: A Non-Starter, Despite BEPS

The OECD’s initiative under BEPS Action 14 is a welcome step towards minimizing international tax disputes (including those relating to transfer pricing adjustments by way of administrative measures through larger international cooperation). However, several legal, conceptual and practical issues remain unaddressed. This article intends to explore whether the measures recommended under BEPS Action 14 are adequate to bring improvement to current dispute resolution mechanisms, especially with regard to post-BEPS changes in transfer pricing policy. Secondly, it also aims to explain how the unaddressed legal, conceptual and practical issues may hinder achieving the stated objective. The author restricts the discussion to only international transfer pricing-related disputes at this stage although several discussions pertain to cross-border tax disputes in general.

International Transfer Pricing and Performance of Supranational Companies in Nigeria West Africa

The study examined the relationship between international transfer pricing and the performance of supranational companies in Nigeria. The study used secondary data from the Central Bank of Nigeria (CBN) Statistical Bulletin, the Federal Inland Revenue Service (FIRS), the World Bank Statistical Bulletin, and annual reports and accounts of the sampled multinational companies. The study used panel regression analysis. The results of the study showed that interest rates and import duties have a significant and positive effect on the performance of supranational corporations in Nigeria. The study further found that corporate income tax and exchange rate have a significant and negative impact on the performance of supranational corporations in Nigeria. Based on the results, the study concluded that international transfer pricing has a significant impact on the performance of supranational companies in Nigeria, particularly when international transfer pricing is measured using interest rates, exchange rates, corporate income taxes and import duties; while performance is measured by profit after tax. The study therefore recommended that supranational companies should develop a system to defend themselves against exchange rate and corporate taxes caused by unforeseen exchange rate movements and double taxation.

The influence of fiscal regulations on transfer pricing: a bibliometric review

It has been concluded that the concept “transfer price” means the price generated by multinational corporations in the process of commercial activity between the affiliated companies located in different countries and, correspondingly, different tax jurisdictions. The potential use of international transfer pricing as an income shift by multinational enterprises has long been recognized. Many tax-related scandals have been made public in the past few years involving some of the major multinational enterprises at this time. These were accused of practicing tax avoidance on an industrial scale by shifting profits to lower-tax jurisdictions through transfer pricing techniques. Multinational enterprises perform intra-firm transactions with foreign related parties to shift taxable profits by manipulating internal transfer prices. This bibliometric review of the literature we proposed aimed to summarize existing research, recognize patterns, problems, and identify the conceptual content of the field, contributing to the existing theory.

The use of information technology for international transfer pricing in multinational enterprises

This paper studies the degree to which multinational enterprises (MNEs) use information technology for managing international transfer pricing (ITP). Based on 21 interviews conducted with in-house accounting and tax professionals in MNEs, we observed limited use of information technology for ITP management. However, some degree of ITP automation was observed in workflow management to produce transfer pricing documentation. The limited degree of automation observed was driven by both system- and individual-level barriers. Overall, we found that management accountants and information technology experts dominate the enterprise resource planning system design agenda, and the tax departments’ ITP tax compliance objective plays a relatively limited role. This reduces the ability for ITP automation partly because the data segmentation that is prioritized for management reporting does not support the tax departments’ needs for legal-entity data segmentation to document tax compliance.

APPLICATION OF NEW REQUIREMENTS FOR STANDARDIZED TRANSFER PRICING DOCUMENTATION IN THE REPUBLIC OF BULGARIA – ADVANTAGES AND BENEFITS FOR TAX AUTHORITIES AND TAXPAYERS

Transfer pricing raises a number of issues and challenges for companies operating transfer operations and for the tax administrations of the countries in which they operate. Along with the increasing role of international transfer pricing on a global scale, increasing attention is paid to possible improvements in the control in this area and improving the regulatory measures in the individual countries aimed at limiting and countering the attempts at manipulation by companies in order to reduce paid profit taxes, customs duties, etc. through the transfer pricing. In modern conditions of continuously increasing globalization, more and more perceivable is the need for application of uniform, internationally recognized requirements and rules to documentation and control of transfer prices.
 The main purpose of this scientific paper is to examine the major rules and requirements related to the preparation of standardized transfer pricing documentation in the Republic of Bulgaria in the contemporary conditions. It discusses the increasing role and significance of international transfer pricing in the context of globalization and the necessity for application of uniform international guidelines on transfer pricing. A special attention is paid to the systematization of significant advantages and benefits of the application of standardized, globally recognized requirements in the field of transfer pricing in the Republic of Bulgaria both for companies -taxpayers and for tax administrations.
 The methodology of research of the issues in the paper involves the application of the historical-logical and systematic approaches and the methods of observation, comparison, analogy, analysis and synthesis, induction and deduction, etc. In accordance with the systematic approach, the information for transfer pricing of the different constituent entities of the multinational groups is considered as an integral part of the information for transfer pricing of the group as a whole.
 As a result of the research made, it is concluded that the implementation of the standardized rules for documentation that multinational groups must prepare in order to justify the methodology for determining transfer prices used in their international intra-group transactions provides valuable advantages and benefits both for the tax administrations of the relevant countries and for the taxpayers.
 From the perspective of tax authorities, the adoption of standardized requirements achieves improvement of the methodology of transfer pricing and tax audit in this area, higher degree of reliability, comparability and transparency of information provided by taxpayers for control over transactions between related parties. Through these requirements are achieved also better results in the tax discipline, the prevention of tax evasion and effective tools for avoidance and resolution of transfer pricing disputes.
 From the position of the taxpayers it is of utmost importance that through the uniform, internationally recognized requirements for documentation and tax audit of transfer prices the burden and costs in preparing the documentation on pricing in international transactions between related parties are significantly reduced. The introduction of these rules creates clarity and predictability with regard to information required to prove that their transactions with related parties satisfy the arm’s length principle. The standardized documentation enables taxpayers to defend their tax position, provides guarantees for the tax treatment of the transactions between related parties, possibilities for advance compliance with the requirements and hence for avoidance of penalties and transfer pricing disputes with tax administrations.

The impacts of inventory in transfer pricing and net income: Differences between traditional accounting and throughput accounting

This research proposes the Theory of Constraints (TOC) throughput accounting (TA) as an alternative management control mechanism in an international transfer pricing setting. We compare TA with the traditional accounting method and demonstrate that the traditional method underestimate factors as demand variation and inventories, which affects decisions, such as moving production to an offshore plant. A detailed system dynamics model is built to simulate the production process in an offshore supply chain to compare the methods. The study aims to fill a gap in the management accounting studies and contribute to the understanding of international transfer pricing and their management controls, exploring more than just the tax savings, which are usually considered isolated from operational factors for supply chain (SC) offshoring decisions. Furthermore, we conduct a brief literature review, present the model and discuss the results. It has been observed that inventory levels are an important part of accounting, offshored supply chains, and transfer pricing. Traditional cost and accounting methods favour higher inventory levels, and they can overestimate net income results up to 70% – especially in higher demand variation scenarios – when compared to the throughput accounting.

New CbC Reporting Regulations in the United Arab Emirates

September 2019 and February 2020, the author published articles in the International Transfer Pricing Journal on CbC reporting regulations in the United Arab Emirates (UAE). As the UAE introduced new CbC reporting regulations for UAE-headquartered multinational enterprise groups on 4 June 2020, this article is structured to provide the latest information concerning CbC reporting regulations in the UAE.

ІМПЛЕМЕНТАЦІЯ ВИМОГ МІЖНАРОДНОГО ТРАНСФЕРТНОГО ЦІНОУТВОРЕННЯ НА ПІДПРИЄМСТВАХ УКРАЇНИ: ОСОБЛИВОСТІ ТА ПЕРСПЕКТИВИ

The features of transfer pricing in Ukraine have been considered. It has been established that transfer pricing in Ukraine is at the stage of formation. The features and prospects for the implementation of international transfer pricing requirements using the «Three-tier model of transfer pricing documentation recommended by the OECP (step 13 of the BEPS plan)» have been identified. The legal aspects of regulating the prevention and minimization of the movement of profits, tax evasion by transnational corporations, in particular, the BEPS package, and others have been considered. The place of Ukraine in the Paying Taxes rating in 2015-2020 is determined. Trends 2015-2020 testify to the formation of tax discipline regarding the timeliness and completeness of reporting on transfer pricing. The dynamics of the submitted reports on controlled transactions in Ukraine in quantitative and value terms in 2013-2020 has been analyzed. The volume of controlled transactions by country and by subject of transactions in 2020 was investigated. It was found that the largest share in the total volume of controlled transactions is occupied by banking services (37%) and transactions with goods (35%), and the largest volume of controlled transactions is carried out in Switzerland. The features of the implementation in Ukraine of the BEPS plan as an international project of the Organization for Economic Cooperation and Development (OECD) and the G20 countries are considered. The innovations in tax legislation in the field of transfer pricing and the peculiarities of introducing a three-level reporting structure on transfer pricing in Ukraine have been described. The World Transfer Pricing 2022 rating of Ukrainian companies offering transfer pricing services is presented. The problems that hinder the effective implementation of the requirements of international transfer pricing in Ukraine have been identified and measures have been proposed that should be taken to overcome them.

Obračun transfernih cena - teorijske i praktične implikacije na rezultat

Obračun transfernih cena - teorijske i praktične implikacije na rezultat

Revisiting Business Restructuring in Light of Israeli Court Decisions and Circulars

In April 2019, the authors published in the International Transfer Pricing Journal an article that addressed, inter alia, OECD and Israeli principles of business restructuring, focusing on the various resulting models, such as outright sale and licensing structures. Since then, however, an Israeli tax court has reached a legal decision that changes the landscape and this article will therefore revisit certain transfer pricing aspects of business restructuring in Israel.

International Transfer Pricing: MNE Dependency on Knowledge of External Tax Consultants

ABSTRACT This paper explores the dependency of multinational enterprises (MNEs) on the international transfer pricing (ITP) knowledge offered by external tax consultants. Based on interviews with 13 ITP/tax executives working for large MNEs in the U.K., we find that the dependency on consultants varies significantly across specific ITP tasks. This dependency is not rooted in a lack of in-house technical ITP knowledge. Rather, consultants offer important industry and process knowledge, often at the individual tax inspector level, that MNEs need to successfully implement their ITP policy and to handle negotiations with tax authorities. The recent OECD project on Base Erosion and Profit Shifting (BEPS) is found to have a limited effect on MNE dependency on consultants, except for the documentation task. We conclude that the profile of consultants as knowledge experts depends on the specific ITP task they undertake.