Optimal Negotiated Transfer Pricing and Its Implications for International Transfer Pricing of Intangibles
AbstractIntangibles exhibit zero marginal licensing cost, including cross-border intra-firm licensing of intangibles within a MNC. A MNC may not realize the full profit potential of licensing intangibles intra-firm, however, under suboptimal negotiated transfer pricing schemes. Our negotiated transfer pricing bargaining structure unlocks this potential by producing an optimal transfer price and larger optimal intra-firm licensed quantity. Increased licensing of intangibles intra-firm across borders produces a greater potential tax savings/consolidated after-tax profit gain per unit of transfer price adjustment, creating a context where MNCs feel a greater imperative or incentive to move beyond legal tax avoidance toward evasion.
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Bibliographic InfoPaper provided by University of Connecticut, Department of Economics in its series Working papers with number 2009-06.
Length: 58 pages
Date of creation: Jan 2009
Date of revision: Dec 2010
Publication status: Published in International Journal of Intellectual Property Management, 4(4) 2011
Note: Published in revised form as: Dawson, P.C. and Miller, S.M. (2011) ‘Optimal negotiated transfer pricing and its implications for international transfer pricing of intangibles’, Int. J. Intellectual Property Management, Vol. 4, No. 4, pp.239–269
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Negotiated transfer pricing; licensing intangibles; arm’s length royalty; decentralized decision-making; multinational corporations; international trade; intra-firm trade;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
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