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- Title
Multinational Transfer Pricing: Management Accounting Theory versus Practice.
- Authors
Adams, Laurel; Drtina, Ralph
- Abstract
MANAGEMENT ACCOUNTING HAS TRADITIONALLY USED A THEORETICAL, ECONOMICS-BASED APPROACH FOR DETERMINING TRANSFER PRICES. NEVERTHELESS, INTERNATIONAL TAX LAW REQUIRES THAT TRANSFER PRICES BE BASED ON AN ARM'S-LENGTH STANDARD. THIS ARTICLE COMPARES THE CONSEQUENCES OF SETTING TRANSFER PRICES UNDER THESE TWO APPROACHES, WHICH ARE DEPENDENT ON WHETHER THE SELLING DIVISION IS OPERATING AT OR BELOW FULL CAPACITY. TO ENSURE THAT TAX COMPLIANCE OBLIGATIONS ARE CONSIDERED WHEN ESTABLISHING TRANSFER PRICES, WE RECOMMEND THAT THE THEORETICAL APPROACH BE MODIFIED SUCH THAT THERE IS NO ADJUSTMENT FOR CAPACITY UTILIZATION. THIS REPRESENTS A SIGNIFICANT SHIFT IN THE TRADITIONAL APPROACH TO TEACHING TRANSFER PRICING.
- Subjects
TRANSFER pricing; INTERNATIONAL business enterprises; INTERCOMPANY transactions; MANAGERIAL accounting; TAX laws; SELLING; TAXPAYER compliance
- Publication
Management Accounting Quarterly, 2010, Vol 11, Issue 3, p22
- ISSN
1528-5359
- Publication type
Article