Examining transfer pricing to improve multinationals’ competitiveness

Abstract

This research examines the strategic role of transfer pricing (TP) in enhancing the competitiveness of multinational enterprises (MNEs), focusing on the interplay between corporate strategy and international tax compliance. The study synthesizes existing literature on transfer pricing methods, corporate strategy, and competitiveness, employing a systematic research approach to assess whether current propositions address the complexities of TP as a strategic tool beyond mere tax minimization. The evolution of corporate strategy, driven by theories such as internalization and the resource-based view, underscores the significance of TP in managing firm-specific advantages (FSA) and reducing transaction costs. This review highlights that TP not only serves as a mechanism for tax optimization but also as a strategic instrument for resource allocation and operational efficiency within MNEs. The research identifies gaps in the literature concerning the direct link between TP methods and firm competitiveness, suggesting a need for further empirical and conceptual analysis. Additionally, the study addresses the implications of international regulatory frameworks, particularly the OECD’s Base Erosion and Profit Shifting (BEPS) package and the arm's length principle, on TP practices. It discusses how these regulations influence MNEs' strategic decisions and competitiveness, emphasizing the challenges and opportunities presented by compliance requirements. Highlights • TP literature has been singly focused on the various calculation methods • TP is calculated mostly as a cost mechanism • Tax implications on TP are significant yet unclear and uncertain • No theory has been created on the direct link of TP methods and the competitiveness of a firm.