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

IIMA Working Paper No. 2005-11-03

20 Pages Posted: 11 Jan 2006

See all articles by Markus Brem

Markus Brem

GTP GlobalTransferPricing Business Solutions GmbH; University of Augsburg

Thomas Alexander Tucha


Date Written: November 2005


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.

Keywords: transfer pricing, value chain, transaction costs, multinational organization, entrepreneurial coordination

JEL Classification: F23, L14, L22, M13

Suggested Citation

Brem, Markus and Tucha, Thomas Alexander, On Transfer Pricing Conceptual Thoughts on the Nature of the Multinational Firm (November 2005). IIMA Working Paper No. 2005-11-03, Available at SSRN: https://ssrn.com/abstract=874568 or http://dx.doi.org/10.2139/ssrn.874568

Markus Brem (Contact Author)

GTP GlobalTransferPricing Business Solutions GmbH ( email )

Wertinger Straße 40
86368 Gersthofen (Augsburg)
+49 (821) 9089979 - 0 (Phone)
+49 (821) 9089979 - 89 (Fax)

HOME PAGE: http://www.GlobalTransferPricing.com

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159

HOME PAGE: http://https://www.uni-augsburg.de/de/fakultaet/wiwi/prof/bwl/schultze/team/markus-brem/

Thomas Alexander Tucha

SAVYVA GmbH ( email )

Josef-Raps-Strasse 7
Munich, 80805
00491774573944 (Phone)

HOME PAGE: http://www.savyva.com

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