DETERMINATION OF TRANSFER PRICING IN MULTINATIONAL COMPANIES

The issue of transfer pricing in multinational companies assumes strategic importance in modern business conditions. Evaluation of performance and goal congruence of all supsidiaries and multinational companies as a whole are determined by the applied rules and methods of transfer pricing. Determination of transfer pricing in multinational companies has become more complicated with differentiation of the tax systems of the countries in which subsidiaries are located. Due to different tax rates on income, companies transfer their profit from high-tax countries to low-tax countries. According to that, the aim of this work is to indicate the importance of transfer pricing and methods of their determination in multinational companies. During the preparation of this article, analysis methods based on relevant and available foreign literature and practices, methods of synthesis and methods of comparison will be applied. The aim of this paper is to indicate to the domestic and professional public the phenomenon of transfer prices and their implications on the performance of subsidiaries and multinational companies as a whole.Key words: transfer pricing, multinational companies, costs, method

The Problem of Transfer Pricing in Indonesia Taxation System

This paper aims to analyze Indonesia taxation system in term of transfer pricing transaction held by multinational enterprises cooperating with affiliated ones overseas. As the consequence of transfer pricing, the government has a decreasing potential income from tax, since those multinational companies are more likely to shift their tax liabilities into other countries with lower tax rate. The practice of transfer pricing commonly happens as a form of minimizing tax expense by making use the loopholes of tax provision without disobeying any taxation rules (tax avoidance) and the transaction in order to minimize the payable tax liabilities by disobeying any tax provision (tax evasion). Transfer pricing is held by multinational companies in order to minimize their operating performance and optimize the tax arrangements as either as the main or important priority. Keywords: transfer pricing, multinational enterprise, taxation system, Indonesia. JEL Classifications: H2, L

Aspek Perpajakan Dalam Praktek Transfer Pricing

Transfer pricing is defined as a special price for sale that is used in exchange of interdivisional to record the revenue of the selling division and expense of the buying division. The main goal of transfer pricing is to evaluate and measure the performance of a company. But transfer pricing is often used by multinational companies to minimize tax paid through the re-engineering of price transferred among divisions. The key to a successful practice of transfer pricing from tax standpoint is the existence of related parties transactions. Related parties is relationship between one company with other company and this relationship happens because of such relationship between each company does not exist naturally.To regulate the tranfer pricing practice, the regulations govern the authority to realocate transfer price among divisions that have related parties transactions

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

Do Government Regulations Prevent Transfer Pricing Manipulations?

This study investigated the effects of government regulations and incentives on the setting of transfer prices.  I found significant main effects of both variables on transfer price choices.  Transfer pricing is important, particularly for Multinational Corporations (MNCs), because of increased trends toward globalization of business activities and, simultaneously, decentralization. These trends have led to increased pressures for sound internal pricing systems, specifically transfer pricing, in order for organizations to ensure optimal and efficient allocations of organization resources and to provide profit performance measurements (Tang 1992).  It has generally been recognized in the literature that in order to maximize after tax cash flows, MNCs shift profits from high to low tax jurisdictions.  Governments in some countries, particularly those with high tax rates, are greatly concerned as to whether or not companies attempt to avoid tax liabilities via transfer pricing manipulation, specifically in terms of trying to shift profits to lower tax jurisdictions, and have enacted laws to limit transfer price choice

The Dark Side of Transfer Pricing: Its Role in Tax Avoidance and Wealth Retentiveness

In conventional accounting literature, ?transfer pricing? is portrayed as a technique for optimal allocation of costs and revenues amongst divisions, subsidiaries and joint ventures within a group of related entities. Such representations of transfer pricing simultaneously acknowledge and occlude how it is deeply implicated in processes of wealth retentiveness that enable companies to avoid taxes and facilitate the flight of capital. A purely technical conception of transfer pricing calculations abstracts them from the politico-economic contexts of their development and use. The context is the modern corporation in an era of globalized trade and its relationship to state tax authorities, shareholders and other possible stakeholders. Transfer pricing practices are responsive to opportunities for determining values in ways that are consequential for enhancing private gains, and thereby contributing to relative social impoverishment, by avoiding the payment of public taxes. Evidence is provided by examining some of the transfer prices practices used by corporations to avoid taxes in developing and developed economies

TAX OPTIMIZATION THROUGH TRANSFER PRICING, COMMON AND MANIPULATIVE PRACTICE

This paper is about how multinational enterprises choose transfer prices in the presence of differential corporate income tax rates. A transfer prince is a value placed on the goods which are traded between divisions of an organization. We review and extetransfer pricing, tax optimization, tax reduction

Fuzzy Transfer Pricing World: On the Analysis of Transfer Pricing with Fuzzy Logic Techniques

The arm’s length analysis of international transfer prices of multinational firms lacks sound methodological approach of the so-called function and risk analysis. In practice, such analyses are descriptive. Derived from Zadeh’s mathematical theory of fuzzy sets, this paper investigates a quantitative approach to identify the function and risk pattern of related parties of multinational companies. We illustrate our fuzzy logic approach with a simple case.

Management control in the transfer pricing tax compliant multinational enterprise

This paper studies the impact of transfer pricing tax compliance on management control system (MCS) design and use within one multinational enterprise (MNE) which employed the same transfer prices for tax compliance and internal management purposes. Our analysis shows immediate effects of tax compliance on the design of organising controls with subsequent effects on planning, evaluating and rewarding controls which reveal a more coercive use of the MCS overall. We argue that modifications to the MCS cannot be understood without an appreciation of the MNEs’ fiscal transfer pricing compliance process

TRANSFER PRICES: MECHANISMS, METHODS AND INTERNATIONAL APPROACHES

Transfer prices are considered the prices paid for the goods or services in a cross-border transaction between affiliates companies, often significant reduced or increased in order to avoid the higher imposing rates from one jurisdiction. Presently, over 60% of cross-border transfers are represented by intra-group transfers. The paper presents the variety of methods and mechanisms used by the companies to transfer the funds from one tax jurisdiction to another in order to avoid over taxation.transfer pricing, intra-firm transaction, tax jurisdiction