International Transfer Pricing Research Articles

Agency Permanent Establishments and the Zimmer case

Part of the Comparative Survey. The French Supreme Administrative Court recently decided in the Zimmer case that a French subsidiary of a foreign parent company, which operated in France under French law as a commissionaire, did not constitute a taxable French permanent establishment in France of the foreign company. The case has been explained in "Zimmer Case: The Issue of the Deemed Existence of a Permanent Establishment Based on Status as a Commissionaire" by Mr Pierre-Jean Douvier and Ms Xenia Lordkipanidze (17 International Transfer Pricing Journal 4, 2010). Country report about this issue on Denmark.

Commissionaire Agency Permanent Establishment Structures and the Impact of the Zimmer Case

Part of the Comparative Survey. The French Supreme Administrative Court recently decided in the Zimmer case that a French subsidiary of a foreign parent company, which operated in France under French law as a commissionaire, did not constitute a taxable French permanent establishment in France of the foreign company. The case has been explained in "Zimmer Case: The Issue of the Deemed Existence of a Permanent Establishment Based on Status as a Commissionaire" by Mr Pierre-Jean Douvier and Ms Xenia Lordkipanidze (17 International Transfer Pricing Journal 4, 2010). Country report about this issue on Belgium.

Commissionaire Agency Permanent Establishment Structures

Part of the Comparative Survey. The French Supreme Administrative Court recently decided in the Zimmer case that a French subsidiary of a foreign parent company, which operated in France under French law as a commissionaire, did not constitute a taxable French permanent establishment in France of the foreign company. The case has been explained in "Zimmer Case: The Issue of the Deemed Existence of a Permanent Establishment Based on Status as a Commissionaire" by Mr Pierre-Jean Douvier and Ms Xenia Lordkipanidze (17 International Transfer Pricing Journal 4, 2010). Country report about this issue on Germany.

Constructive Permanent Establishments: Canadian Comments on the Zimmer Case

Part of the Comparative Survey. The French Supreme Administrative Court recently decided in the Zimmer case that a French subsidiary of a foreign parent company, which operated in France under French law as a commissionaire, did not constitute a taxable French permanent establishment in France of the foreign company. The case has been explained in "Zimmer Case: The Issue of the Deemed Existence of a Permanent Establishment Based on Status as a Commissionaire" by Mr Pierre-Jean Douvier and Ms Xenia Lordkipanidze (17 International Transfer Pricing Journal 4, 2010). Country report about this issue on Canada.

Commissionaire Agency Permanent Establishments

Part of the Comparative Survey. The French Supreme Administrative Court recently decided in the Zimmer case that a French subsidiary of a foreign parent company, which operated in France under French law as a commissionaire, did not constitute a taxable French permanent establishment in France of the foreign company. The case has been explained in "Zimmer Case: The Issue of the Deemed Existence of a Permanent Establishment Based on Status as a Commissionaire" by Mr Pierre-Jean Douvier and Ms Xenia Lordkipanidze (17 International Transfer Pricing Journal 4, 2010). Country report about this issue on Portugal.

EU Council Adopts the Revised Code of Conduct for the Effective Implementation of the EU Arbitration Convention

The second of two reports by the EU Joint Transfer Pricing Forum considered in the January/February issue of the International Transfer Pricing Journal, contained recommendations that were incorporated into the proposal for a revised Code of Conduct on the Arbitration Convention. This article considers the eight recommendations included in the revised Code of Conduct, which is intended to further improve the Arbitration Convention and was approved by the EU Council in December 2009. EU Member States themselves will have to take further steps, including in their domestic tax and transfer pricing legislation and practices.

Multinational transfer pricing and international taxation: what, why, how and reporting challenges

International transfer pricing issues are the subject of this paper. The hugeand growing volume of tangible and intangible goods and the motivation(profit, politics and finance) for manipulations involved in transfer pricing situations makes this an important area of study. Multinational transfer pricing has so much reporting challenges due to the measurement and international taxation complexities. This paper identifies the complexities in the arm’s length measurements and the various loopholes for manipulating transfer prices. It calls for prudence in the measurement and revenue collection process given the vulnerability of subsidiary’s country in loosing revenue.Keywords: Transactional Methods, Cost Plus Method, Transfer Pricing,International Taxation

Performance evaluation and international transfer pricing in foreign subsidiaries of Japanese companies :

Performance evaluation and international transfer pricing in foreign subsidiaries of Japanese companies :

Compulsory Arbitration in International Transfer Pricing and Other Double Taxation Disputes

Substantial portions of international transactions are carried out within Multinational Enterprises (MNEs). The prices determined for such transactions are referred to as the transfer prices. Because this pricing determination is being controlled by the MNE itself, it might deviate from the market price (arm's price) to be determined by uncontrolled entities. And if such pricing methods are accepted by the countries involved it would cause national tax losses. As a result, countries have developed laws and rules determining such transfer prices (The norms). The problem is that even though such norms in each country tend to rely on the arm's length standard, there is great diversity of such national norms and in their application in reality. Consequently, if two or more countries apply different rules to the same transaction, it is inevitable that economic double taxation will occur. It occurs when one country makes adjustment to the transfer prices, while the other country would not make a corresponding adjustment to such prices. That is so because a portion of the income arising out of the transaction is being simultaneously attributed to the enterprise by the two countries involved, and therefore that portion is being taxed by the two countries, and thus subjecting the MNE to economic double taxation. Despite the convergence of accepted transfer-pricing methods among tax administrations, important differences continue to exist, and the potential for major disputes with MNEs remain. Current progress in the development of international mechanisms for dispute resolution could help in alleviating conflict and hardship.

International transfer pricing and subsidiary performance: The role of organizational justice

AbstractInternational intrafirm trade is increasingly important in the global economy. Intrafirm transactions are governed by transfer‐pricing policies mandated by parent companies. Economic and accounting theories have long prescribed policies that maximize the parent company's short‐term profits but may have other, unintended outcomes. These outcomes are explored in a single‐case study. Based on this case study and organizational justice theory, a theoretical framework is developed to show how frequently used transfer‐pricing policies, through their impact on subsidiary managers' perceptions of justice, can significantly affect the subsidiary's strategic performance. First, the conditions under which transfer‐pricing policies can be perceived as procedurally, interactionally, or distributively unfair are presented. Second, it is proposed that those justice perceptions have an impact on subsidiary managers' commitment, trust in the parent company, neglect, ethical behavior, productivity, work quality, and compliance, and that the magnitude of this impact is moderated by the quality of relations between the parent company and subsidiary managers. Finally, it is predicted that such attitudes and behaviors may generate important agency and transaction costs that jeopardize the expected outcomes of international strategies of vertical integration. © 2009 Wiley Periodicals, Inc.

International Transfer Pricing for Goods and Intangible Asset Licenses in a Decentralized Multinational Corporation: Review and Extensions

Intangibles exhibit zero marginal licensing cost, including cross-border intra-firm licensing of intangibles within a multinational corporation (MNC). An MNC may not realise the full profit potential of licensing intangibles intra-firm, however, under suboptimal negotiated transfer pricing schemes. Our negotiated transfer pricing bargaining structure unlocks this potential by producing an optimal transfer price and larger optimal intra-firm licensed quantity. Increased licensing of intangibles intra-firm across borders produces a greater potential tax savings/consolidated after-tax profit gain per unit of transfer price adjustment, creating a context where MNCs feel a greater imperative or incentive to move beyond legal tax avoidance toward evasion.

A Survey Study of Japanese Companies’ International Transfer Pricing:

A Survey Study of Japanese Companies’ International Transfer Pricing:

Strategic Incentives for Keeping One Set of Books in International Transfer Pricing

This paper analyses the optimal accounting and transfer pricing policies of two multinational duopolists facing price competition in the final product market. Our main finding is that firms in industries with a small number of competitors may benefit from using the same transfer price for tax and managerial purposes, even if the tax and managerial objectives are conflicting. This result contrasts earlier theoretical research having established the superiority of separate prices for tax and managerial purposes in a non-strategic setting. We analyze two different tax environments and identify conditions for which a joint commitment to a policy of one set of books is a dominant strategy equilibrium for both scenarios. We find that the existence of this equilibrium is more likely if the products are close substitutes, so that there is a high intensity of competition in the product market. Our analysis broadens the theoretical understanding of the factors governing the optimal accounting policy and provides testable empirical predictions. According to our results, the practice of one set of books should be the prevalent accounting method in markets with a small number of competitors and similar products.

GlaxoSmithKline Plc.: International Transfer Pricing and Taxation

This comprehensive case intends to develop your understanding of the complexities involved in the international transfer pricing and taxation of intangible assets. The backdrop for the case is GlaxoSmithKline's $5.2 billion settlement in 2006 with the U.S. Internal Revenue Service. You are required to provide possible rationales for the positions advocated by the Company as well as the IRS. You are also required to present calculations under different transfer pricing methods, identify the most appropriate method, compute Foreign Tax Credits for different scenarios, and suggest possible strategies for multinational corporations to reduce the odds of negative settlements with tax authorities.

International Transfer Pricing and Intellectual Property: The PrimeCo Case

This case introduces students to issues related to international transfer pricing for intellectual property. PrimeCo is a manufacturer of cellular telephone (cell phone) components. The firm has invested extensively in research and development activities. As a result, it has received many patents for innovative cell phone parts. PrimeCo recently established a subsidiary (SubCo) to manufacture its products for the Asia-Pacific region. The establishment of SubCo raises many difficult questions. Specifically, students are asked to address issues related to modes of entry into foreign markets, methods of transfer pricing in royalty arrangements, tax laws underlying transfer pricing, and ethical aspects of applying transfer prices.

International Transfer Pricing at Marks Pharmaceuticals: A Tax and Financial Accounting Perspective

This case presents a realistic global business situation dealing with an important and timely topic: transfer pricing. Specifically, the case addresses transfer pricing issues relating to both tangibles and intangibles and examines the issue from both tax and financial accounting perspectives. Recent developments in the tax and financial reporting domains make this an ideal setting in which to introduce students to current issues and to demonstrate the interrelated nature of these subdisciplines. The case can be readily adapted for use in a variety of classes (research, tax, or financial accounting) at both the graduate and undergraduate levels.

A Study on MNC's International Transfer Pricing Tax Negotiation

A Study on MNC's International Transfer Pricing Tax Negotiation

A guide to international transfer pricing

AbstractMore than 70 percent of global trading transactions are between companies of multinational corporations. But local tax authorities fear they may lose tax revenues, as a result of global trading and the artificial manipulation of transfer prices. So the United States, Japan, and the European Union have introduced stringent transfer pricing legislation. Companies that violate them face costly sanctions!How can companies cope with these tough laws? The authors of this article give valuable guidance. They explain the different types of transfer pricing strategies, provide guidelines, and expose possible pitfalls for companies dealing in this complex area. © 2007 Wiley Periodicals, Inc.

International Transfer Pricing Policy in US and German Subsidiaries

International transfer prices (ITP) policies affect economic decisions and corporate performance. It is a long held belief that multinational companies use ITP to minimize global tax liability. From this point of view, this is an administrative process but the strategy is also as a major determinant of the ITP policy (Eccles, 1985). This paper analyzes the determinants of the ITP policy in American and German subsidiaries operating in Portugal based on their responses to a questionnaire. The study analyses the methods used by these companies to determine the ITP, the level of participation of local managers in defining this policy and the association of these methods with the objectives of the ITP policy. It also analyses the determinants of the ITP policy and its effect on the performance of the subsidiary. Previous research analyzed the ITP policy of American, British, Canadian or Japanese companies while this research is a comparative study. Other issue commonly discussed in the literature is the effect of the ITP policy on the subsidiary's profitability and this study tests statistically this effect. Another contribution is the confrontation of the controllers' perceptions of the effect of the ITP policy on the subsidiaries' profitability with accounting data. The study confirms the importance of the strategy and the diversity of methods for determining the transfer prices. As a consequence, the OECD arm's length principle is clearly a constraint to actual practices.

Managerial Autonomy and Tax Compliance: An Empirical Study on International Transfer Pricing

This paper examines the impact of managerial autonomy on tax compliance in an international transfer pricing context. Specifically, we study whether foreign subsidiaries' autonomy in making pricing and sourcing decisions on intrafirm transfers affect their profit shifting through international transfer pricing. We measure transfer pricing noncompliance in terms of tax audit adjustments made by tax authorities. Based on a sample of 163 transfer pricing audits on foreign investment enterprises (FIEs) in China, we find that tax audit adjustments for FIEs that have autonomy in setting transfer prices or sourcing from outsiders are smaller than those that have their transfer transactions dictated by parent companies.