Edited by Trevor Hopper, Mathew Tsamenyi, Shahzad Uddin and Danture Wickramasinghe
Chapter 15: Exploring the Transfer Pricing Conundrum
Clive Emmanuel THE SIGNIFICANCE OF TRANSFER PRICING Originally transfer pricing was explored in a domestic situation where profit centre management created tensions between managerial motivation, viable measures of economic performance and economically efficient operating decisions. Joel Dean’s classic analysis begins with ‘The transfer pricing dispute was settled by a fist-fight in the boardroom’ (1955). Those issues persist but, with the growth in multinational companies (MNCs), the value placed on intra-group transactions has attracted the attention of many other interested parties, especially when goods, services and intangibles are transferred across national boundaries. One group of interested parties are emerging or less developed countries (LDCs) that wish to attract MNC inward investment. Fiscal authorities in distinct national jurisdictions are also acutely aware of the effect transfer pricing exerts on their capacity to raise revenue. The potentially conflicting motives within and between these parties, together with MNCs, is explored to reveal the broad dimensions of the transfer pricing conundrum. The choices facing host governments, including LDCs, national fiscal authorities and MNCs, take place in a world trade landscape where the Organisation for Economic Co-operation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD) provide Model Conventions whose main aim is to remove obstacles to the development of economic relations between countries. We will make use of these on a selective basis in our exploration of the conundrum. In a paraphrase of Wells (1968), a transfer price is the monetary expression of a movement of goods, services or intangibles between...
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