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On Transfer Pricing: Conceptual Thoughts on the Nature of the Multinational Firm

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  • Brem Markus
  • Tucha Thomas

Abstract

This paper deploys Transaction Cost Economics (TCE) to elaborate on the shortcomings of “mainstream” transfer pricing in multinational firms. Departing from the notion that multinationals increasingly (re-)organize their business along multinational value chains irrespective of jurisdictional borders, the paper discusses the nature of the multinational firm and the problem of choosing the right intra-group (transfer) price. The mainstream transfer pricing approach derived from the Arm´s Length Principle is deemed inappropriate for globalized MNEs. Referring to the value chain model, the paper suggests that “entrepreneurial coordination” is the key performance feature to be used for valuing business activity and for allocating – for tax transfer pricing purposes – standard markups and residual profits along the value chain.

Suggested Citation

  • Brem Markus & Tucha Thomas, 2005. "On Transfer Pricing: Conceptual Thoughts on the Nature of the Multinational Firm," IIMA Working Papers WP2005-11-03, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:wp01915
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    File URL: https://www.iima.ac.in/sites/default/files/rnpfiles/2005-11-03markus.pdf
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    Cited by:

    1. Brem Markus, 2005. "Globalization, Multinationals and Tax Base Allocation: Advance Pricing Agreements as Shifts in International Taxation?," IIMA Working Papers WP2005-12-01, Indian Institute of Management Ahmedabad, Research and Publication Department.

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