The Need For Working Capital Adjustments In A Transfer Pricing
AbstractTransfer pricing involves the price that one member of a multinational organization charges another member operating in a different tax jurisdiction for goods, services or intangible property. Performing working capital adjustments are necessary to ensure that returns derived from a set of comparables can be reliably applied to a tested party operating in a non arm’s length setting. There is no theoretical argument that suggests that working capital adjustments should be rejected. The analysis has shown that operating in a perfectly competitive environment implies that working capital adjustments are a requirement. These findings are supported on theoretical grounds which are violated when different working capital intensities between firms exist. Given that firms are assumed to be price-takers, then the only way that prices charged by all firms can be a taken as given is if all of the factors that affect prices, including working capital intensities, are the same.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 0508009.
Length: 6 pages
Date of creation: 24 Aug 2005
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Note: Type of Document - doc; pages: 6
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transfer pricing; working capital adjustments;
Find related papers by JEL classification:
- D1 - Microeconomics - - Household Behavior
- D2 - Microeconomics - - Production and Organizations
- D3 - Microeconomics - - Distribution
- D4 - Microeconomics - - Market Structure and Pricing
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