International Transfer Pricing

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Abstract

International transfer pricing determines how the worldwide income of a multinational enterprise is divided among countries for income tax purposes when transactions occur within the firm. This review examines economics, accounting, legal research, and tax practitioner literatures on international transfer pricing. The empirical literature documents the ability of multinational enterprises to shift income attributable to intangible assets and organizational capital from high-tax to low-tax countries. The theoretical literature reflects many different perspectives, but a recurring theme is that the current system that evolved in a world in which value was created by tangible assets with clear physical locations is not well suited for a world in which value is created by firms that develop intangible assets and choose organizational structures that economize on transaction costs.

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