IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/91947.html
   My bibliography  Save this paper

Foreign Subsidiary, Transfer Pricing and Tariffs

Author

Listed:
  • Kant, Chander

Abstract

In the transfer pricing literature, Horst [12] concludes that the multinational firm (MNF) will generally charge a "low" transfer price (LTP) while other authors are ambivalent on this question. This paper shows that less than whole ownership over the subsidiary generally makes the MNF change its transfer pricing strategy: from desiring a LTP to wanting a high transfer price (HTP). The conditions for an HTP are fairly broad so that we are more likely to observe it than has been suggested in the literature. The MNF literature also presumes that the host country loses revenue due to an HTP. However, this view ignores the effects of tariffs on a government's revenue. If tariff revenue is included an HTP can increase the host country's revenue.

Suggested Citation

  • Kant, Chander, 1988. "Foreign Subsidiary, Transfer Pricing and Tariffs," MPRA Paper 91947, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:91947
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/91947/1/MPRA_paper_91947.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hanson, James S., 1975. "Transfer pricing in the multinational corporation: A critical appraisal," World Development, Elsevier, vol. 3(11-12), pages 857-865.
    2. Panagariya, Arvind, 1982. "Tariff Policy under Monopoly in General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 143-156, February.
    3. Lorraine A. B. Eden, 1978. "Vertically Integrated Multinationals: A Microeconomic Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 11(3), pages 534-546, August.
    4. Katrak, Homi, 1979. "Multinational Monopolies and Commercial Policy: A Qualification and a Reply," Oxford Economic Papers, Oxford University Press, vol. 31(3), pages 508-511, November.
    5. Sanjaya Lall, 1980. "Transfer-Pricing by Multinational Manufacturing Firms," Palgrave Macmillan Books, in: The Multinational Corporation, chapter 5, pages 110-136, Palgrave Macmillan.
    6. Jack Hirshleifer, 1956. "On the Economics of Transfer Pricing," The Journal of Business, University of Chicago Press, vol. 29, pages 172-172.
    7. Itagaki, Takao, 1979. "Theory of the Multinational Firm: An Analysis of Effects of Government Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 437-448, June.
    8. Batra, Raveendra N & Hadar, Josef, 1979. "Theory of the Multinational Firm: Fixed versus Floating Exchange Rates," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 258-269, July.
    9. Horst, Thomas, 1971. "The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1059-1072, Sept.-Oct.
    10. Lloyd A. Metzler, 1949. "Tariffs, the Terms of Trade, and the Distribution of National Income," Journal of Political Economy, University of Chicago Press, vol. 57(1), pages 1-1.
    11. L. W. Copithorne, 1971. "International Corporate Transfer Prices and Government Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 4(3), pages 324-341, August.
    12. Finger, J. M., 1971. "Protection and domestic output," Journal of International Economics, Elsevier, vol. 1(3), pages 345-351, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Konrad, Kai A. & Erik Lommerud, Kjell, 2001. "Foreign direct investment, intra-firm trade and ownership structure," European Economic Review, Elsevier, vol. 45(3), pages 475-494, March.
    2. Alfons Weichenrieder, 2009. "Profit shifting in the EU: evidence from Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(3), pages 281-297, June.
    3. Schindler, Dirk & Schjelderup, Guttorm, 2012. "Debt shifting and ownership structure," European Economic Review, Elsevier, vol. 56(4), pages 635-647.
    4. Tran Quoc H. & Croson Rachel T. A. & Seldon Barry J., 2016. "Experimental Evidence on Transfer Pricing," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 50(1), pages 27-48, June.
    5. Guttorm Schjelderup, 1999. "Multinationals, Intra-Firm Trade and the Taxation of Foreign-Source Income," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(1), pages 93-105.
    6. Hiroshi Mukunoki & Hirofumi Okoshi, 2021. "Tariff elimination versus tax avoidance: free trade agreements and transfer pricing," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(5), pages 1188-1210, October.
    7. Hayato Kato & Hirofumi Okoshi, 2019. "Production location of multinational firms under transfer pricing: the impact of the arm’s length principle," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 835-871, August.
    8. Schindler, Dirk & Schjelderup, Guttorm, 2008. "Multinationals, Minority Ownership and Tax-Efficient Financing Structures," Discussion Papers 2008/19, Norwegian School of Economics, Department of Business and Management Science.
    9. Kant, Chander, 1989. "Perverse Intra-Firm Trade," MPRA Paper 90776, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Villegas, F. & Ouenniche, J., 2008. "A general unconstrained model for transfer pricing in multinational supply chains," European Journal of Operational Research, Elsevier, vol. 187(3), pages 829-856, June.
    2. Peter C. Dawson & Stephen M. Miller, 2009. "International Transfer Pricing for Goods and Intangible Asset Licenses in a Decentralized Multinational Corporation: Review and Extensions," Working Papers 0901, University of Nevada, Las Vegas , Department of Economics.
    3. Kenji Matsui, 2012. "Auditing internal transfer prices in multinationals under monopolistic competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(6), pages 800-818, December.
    4. Emmanuel Bretin & Stéphane Guimbert & Thierry Madiès, 2002. "La concurrence fiscale sur le bénéfice des entreprises : théories et pratiques," Économie et Prévision, Programme National Persée, vol. 156(5), pages 15-42.
    5. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2006. "Transfer Pricing by U.S.-Based Multinational Firms," NBER Working Papers 12493, National Bureau of Economic Research, Inc.
    6. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 277-290, July.
    7. Matsui, Kenji, 2011. "Intrafirm trade, arm's-length transfer pricing rule, and coordination failure," European Journal of Operational Research, Elsevier, vol. 212(3), pages 570-582, August.
    8. Dikolli, Shane S. & Vaysman, Igor, 2006. "Information technology, organizational design, and transfer pricing," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 201-234, April.
    9. Woonghee Tim Huh & Kun Soo Park, 2013. "Impact of transfer pricing methods for tax purposes on supply chain performance under demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 60(4), pages 269-293, June.
    10. Kant, Chander, 1995. "Minority ownership, deferral, perverse intrafirm trade and tariffs," MPRA Paper 91949, University Library of Munich, Germany.
    11. Peter C. Dawson & Stephen M. Miller, 2000. "Transfer Pricing in the Decentralized Multinational Corporation," Working papers 2000-06, University of Connecticut, Department of Economics.
    12. Gilroy, Bernard Michael, 1987. "The role of intra-firm trade," MPRA Paper 18039, University Library of Munich, Germany.
    13. Thierry Madiès, 2003. "Prix de transfert optimaux et comportement stratégique des multinationales," Recherches économiques de Louvain, De Boeck Université, vol. 69(4), pages 387-406.
    14. Gao, Lu & Zhao, Xuan, 2015. "Determining intra-company transfer pricing for multinational corporations," International Journal of Production Economics, Elsevier, vol. 168(C), pages 340-350.
    15. Pauwels, Wilfried & Weverbergh, Marcel, 2005. "The Golden Rule in Transfer Pricing Regulation," Research Papers 24170, University of Antwerp, Faculty of Applied Economic Sciences.
    16. Cooper, Maggie & Nguyen, Quyen T.K., 2020. "Multinational enterprises and corporate tax planning: A review of literature and suggestions for a future research agenda," International Business Review, Elsevier, vol. 29(3).
    17. CHOI, Jay Pil & FURUSAWA, Taiji, 2018. "Transfer Pricing and the Arm's Length Principle under Imperfect Competition," Discussion paper series HIAS-E-73, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    18. Filip Novotný, 2008. "Daňová optimalizace nadnárodních společností prostřednictvím vnitřních cen: přehled hlavních teoretických východisek a možných makroekonomických dopadů [Tax optimization of multinational firms thro," Politická ekonomie, Prague University of Economics and Business, vol. 2008(1), pages 40-53.
    19. Kant, Chander, 1989. "Perverse Intra-Firm Trade," MPRA Paper 90776, University Library of Munich, Germany.
    20. Hayato Kato & Hirofumi Okoshi, 2022. "Economic Integration And Agglomeration Of Multinational Production With Transfer Pricing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1325-1355, August.

    More about this item

    Keywords

    Less than wholly owned subsidiary; high transfer price;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:91947. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.