The optimal focus of transfer prices: pre-tax profitability versus tax minimization

• 成果类型: Article
• 署名作者: Martini, Jan Thomas
• 署名单位: University of Bielefeld
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-015-9321-3
• 发表日期: 2015
• 页码: 866-898
• 关键词: transfer-pricing rules; multinational-firm; Bargaining problem; books

摘要

This paper studies transfer prices influencing managerial decisions and determining corporate taxes in a multinational firm. Common sense suggests that the transfer price decision should be made to maximize the firm's after-tax profit and thus achieve the optimal trade-off between pre-tax profitability and tax minimization. Based on a model of a decentralized firm facing asymmetric information with respect to operations, I examine why this conclusion does not hold in general. In particular, I demonstrate that a policy of negotiated transfer pricing, under which the divisions exploit their superior information but select the transfer price to maximize the firm's pre-tax profit, is the firm's optimal organizational choice if the high-tax division's productivity is high. With respect to the firm's discretion over the transfer price, I identify situations where the firm's optimal policy choice does not depend on the arm's length range and where less discretion increases the firm's profitability.