Transfer pricing as a tax compliance risk

This paper studies the role of transfer pricing as a critical compliance issue. Specifically, we analyse whether and to what extent the perceived risk associated with transfer pricing responds to country-, industry- and firm-specific characteristics. Empirically, transfer pricing risk awareness is measured as a professional assessment reported by the person with ultimate responsibility for transfer pricing in their company. Based on a unique global survey conducted by a Big 4 accounting firm in 2007 and 2008, we estimate the number of firms reporting transfer pricing being the largest risk issue with regard to subsequent tax payments. We find that transfer pricing risk awareness depends on variables accounting for general tax and transfer pricing specific strategies, the types and characteristics of intercompany transactions the multinational firms are involved in, their individual transfer pricing compliance efforts and resources dedicated to transfer pricing matters.     

Correlation and the pricing of risks

Given a pricing kernel we investigate the class of risks that are not priced by this kernel. Risks are random payoffs written on underlying uncertainties that may themselves either be random variables, processes, events or information filtrations. A risk is said to be not priced by a kernel if all derivatives on this risk always earn a zero excess return, or equivalently the derivatives may be priced without a change of measure. We say that such risks are not kernel priced. It is shown that reliance on direct correlation between the risk and the pricing kernel as an indicator for the kernel pricing of a risk can be misleading. Examples are given of risks that are uncorrelated with the pricing kernel but are kernel priced. These examples lead to new definitions for risks that are not kernel priced in correlation terms. Additionally we show that the pricing kernel itself viewed as a random variable is strongly negatively kernel priced implying in particular that all monotone increasing functions of the kernel receive a negative risk premium. Moreover the equivalence class of the kernel under increasing monotone transformations is unique in possessing this property.      

Pricing Double-Trigger Reinsurance Contracts: Financial Versus Actuarial Approach

This article discusses various approaches to pricing double‐trigger reinsurance contracts—a new type of contract that has emerged in the area of ‘‘alternative risk transfer.’’ The potential coverage from this type of contract depends on both underwriting and financial risk. We determine the reinsurer's reservation price if it wants to retain the firm's same safety level after signing the contract, in which case the contract typically must be backed by large amounts of equity capital (if equity capital is the risk management measure to be taken). We contrast the financial insurance pricing models with an actuarial pricing model that has as its objective no lessening of the reinsurance company's expected profits and no worsening of its safety level. We show that actuarial pricing can lead the reinsurer into a trap that results in the failure to close reinsurance contracts that would have a positive net present value because typical actuarial pricing dictates the type of risk management measure that must be taken, namely, the insertion of additional capital. Additionally, this type of pricing structure forces the reinsurance buyer to provide this safety capital as a debtholder. Finally, we discuss conditions leading to a market for double‐trigger reinsurance contracts.     

商业银行资金转移定价系统:转移方法、定价模式与实施建议

资金转移定价系统是商业银行进行利率风险管理、产品定价、资源配置、利润核算、绩效评价、优化决策和提高运营效率的重要工具.实施资金转移定价对商业银行经营管理水平的提高以及竞争力的提升具有很大的促进作用,对提高商业银行产品利率敏感性、完善货币政策传导机制具有不可忽视的影响.本文介绍了资金转移定价的模式和方法,比较了各自的优劣,并结合我国商业银行目前面临的内外部环境特征,指出我国商业银行实行资金转移定价必须注意的几个问题.     

Sub-nationals' risk premia in fiscal federations: Fiscal performance and institutional design

The recent debt crisis in Europe highlighted the importance of institutional design and, in particular, bail-out clauses in determining States' risk premia in fiscal or quasi-fiscal federations. This paper examines the determinants of sub-national governments' risk premia in fiscal federations using secondary market data for the USA, Canada, Australia and Germany. It finds that, as for central governments, fiscal fundamentals matter in the pricing of risk, and sub-national governments with higher public debt and larger deficits pay higher premia. However, this relationship is not uniform across federations and it differs with institutional arrangements. In particular, market pricing mechanisms are less effective in presence of explicit or implicit guarantees from the central government. We show that when sub-national governments depend on high transfers from the central government (i.e., when there is some form of implicit guarantee from the center), markets are less responsive to sub-national governments' fiscal fundamentals. Using primary market data, the paper also shows that high transfer dependency lowers the probability of sub-national governments to borrow on capital markets.     

后危机时代信用衍生市场的发展方向

信用衍生市场能够促进信用风险的定价、分散和转移,并有助于金融稳定。遗憾的是,此次金融危机的发生,导致各方对信用衍生品产生很多误解。本文试图对此作一澄清,通过分析后危机时代信用衍生市场的新特点和改革路径,找出其未来的发展方向,并对发展中国的信用衍生市场提出建议。     

我国推行跨国公司预约定价问题研究

作为一种新兴的转移定价事前调整方法,预约定价的优势得到征纳税双方的普遍认可,不但较好地解决了转移定价的滥用问题,避免事后调整带来的处罚,还能维护纳税人国内法定权限的确定性,降低由于征纳纷争给企业带来的干扰。本文针对我国目前在预约定价立法与实践存在的问题,分析了在我国的推行预约定价制度的必要性,提出我国加快推行预约定价制度的相应对策。     

转让定价税制的国际比较与发展趋势

本文从转让定价税制中关联企业的认定、关联交易的类型、调整方法等基本内容出发,分析比较了世界上较典型的转让定价税制,揭示了国际转让定价税制的内在规律,并对国际转让定价税制的发展趋势进行了分析。     

Overhead cost allocation changes in a transfer pricing tax compliant multinational enterprise

This paper addresses how overhead cost allocation system design in multinational enterprises (MNEs) is affected by transfer pricing tax regulation. Using a case study research strategy we find that the implementation of a transfer pricing tax compliance strategy gives rise to a number of changes to the overhead cost allocation system design. Findings suggests that a contingent relationship exists between overhead cost allocation and transfer pricing tax compliance. We argue that when seeking to understand and explain MNEs’ overhead cost allocation system design for intra-company services, the MNEs’ response to its tax regulatory environment is a significant explanatory variable.     

Accounting restatements and information risk

We examine the association between accounting restatements and the pricing of information risk. Using the Fama and French three-factor model augmented with discretionary and innate information risk factors, we find a significant increase in the factor loadings on the discretionary information risk factor for restatement firms after a restatement announcement. The increase in factor loadings results in an increase in the estimated cost of capital, which is cross-sectionally associated with the short-window price reaction to restatements. We study several potential determinants of the change in information risk pricing and find evidence consistent with the restatement initiator (auditor vs. firm management) and the number of times a firm restates affecting the change in the pricing of discretionary information risk. We also find an increase, of smaller magnitude, in the pricing of discretionary information risk for non-restatement firms in the same industries as the restatement firms, consistent with an information transfer effect.     

我国转让定价税务管理中存在的问题及改进建议

外资企业在我国投资、经营过程中,存在运用转让定价等手段转移利润、逃避税收负担的问题。为了消除转让定价避税带来的危害,我国出台了一系列转让定价税务管理法律法规,不断建立健全转让定价税务管理制度,取得了一定的成效。但我国转让定价税务管理还存在诸如管理制度不完善等问题。本文认为,针对我国转让定价税务管理的现状,我们要在建立科学、完备的转让定价税收法律法规体系,扩大转让定价审计的数量和范围等方面下功夫,不断改进我国转让定价税务管理。     

A model of cost-based transfer pricing

In most decentralized organizations, goods and services are transferred between divisions. These transfers are frequently recorded in the accounting books of the divisions; the term transfer price refers to the dollar amount of the interdivisional exchange. This study considers two main issues: (i) the costs and the benefits of delegating decisions through a system of transfer pricing and divisional performance evaluation, and (ii) the performance of one common method of pricing intrafirm transactions: cost-based transfer pricing.The study analyzes a firm in which each divisional manager has better information about the divisional environment than what is known by the firm's top management. The first half of the paper demonstrates that the firm can attain the optimal level of profits with a compensation system utilizing (i) reports by divisional managers describing in complete detail each manager's private information, and (ii) divisional performance evaluation with cost-based transfer pricing. Next, a situation is considered in which divisional managers are not able to communicate their private information to the firm's top management because of complexity of divisional environments or managers' specialized expertise. In this bounded-rationality setting, a managerial-compensation system employing cost-based transfer pricing allows the firm to earn strictly higher expected profits than if all decisions are made by the firm's top management relying on divisional managers' reports.Financial support from the Unisys Corporation is gratefully acknowledged.     

Cost-based transfer pricing

This paper compares the performance of alternative cost-based transfer pricing methods. We adopt an incomplete contracting framework with asymmetric information at the trading stage. Transfer pricing guides intra-company trade and provides incentives for value-enhancing specific investments. We compare actual-cost transfer prices that include a markup over marginal costs with standard-cost transfer prices that are determined either by the central office ex ante (centralized standard-cost transfer pricing) or by the supplying division at the trading stage (reported standard-cost transfer pricing). For the actual-cost methods, we show that markups based on the joint contribution margin (contribution-margin transfer pricing) dominate purely additive markups (cost-plus transfer pricing). We obtain the following results. (1) Centralized standard-cost transfer pricing dominates the other methods if the central office and the divisions ex ante face low cost uncertainty. (2) The actual-cost methods dominate the other methods if the central office and the divisions ex ante face high cost uncertainty and later, at the trading stage, the buying division receives sufficient cost information. (3) Reported standard-cost transfer pricing dominates the other methods if the central office and the divisions ex ante face high cost uncertainty, and the buyer has insufficient cost information at the trading stage.     

国外转让定价税制发展研究

本文将国外转让定价税制的发展过程归结为早期和近期两个发展时期,并对这两个时期转让定价税制发展变化的历史背景、各个时期发展的特点和发展要点做了简要阐述。     

Corporate environments and international transfer pricing: an empirical study of China in a developing economy framework

This paper investigates the international transfer pricing methods adopted by multinational corporations (MNCs) in China and how their choices are affected by their specific corporate attributes in the context of the business environment in China. Empirical test results based on structured interviews indicate that MNCs having a local (Chinese) partner in management tend to adopt market-based transfer pricing methods. The influence of local partners on the choice of transfer pricing methods is modified by the impact of the source of foreign investment, as the analysis reveals that US-sourced MNCs are more likely to use cost-based pricing methods for international transfers. The influences of these two variables on the choice of transfer pricing methods are significant both directly and interactively. There is also some evidence that export-oriented enterprises are more likely to adopt cost-based transfer pricing than those aiming at China's domestic market. By providing empirical evidence on the impact of key corporate attributes on transfer pricing which have not been studied by prior research in the context of a developing economy, this research contributes to a more comprehensive understanding of transfer pricing in developing countries.     

The impacts of inventory in transfer pricing and net income: Differences between traditional accounting and throughput accounting

This research proposes the Theory of Constraints (TOC) throughput accounting (TA) as an alternative management control mechanism in an international transfer pricing setting. We compare TA with the traditional accounting method and demonstrate that the traditional method underestimate factors as demand variation and inventories, which affects decisions, such as moving production to an offshore plant. A detailed system dynamics model is built to simulate the production process in an offshore supply chain to compare the methods. The study aims to fill a gap in the management accounting studies and contribute to the understanding of international transfer pricing and their management controls, exploring more than just the tax savings, which are usually considered isolated from operational factors for supply chain (SC) offshoring decisions. Furthermore, we conduct a brief literature review, present the model and discuss the results. It has been observed that inventory levels are an important part of accounting, offshored supply chains, and transfer pricing. Traditional cost and accounting methods favour higher inventory levels, and they can overestimate net income results up to 70% – especially in higher demand variation scenarios – when compared to the throughput accounting.     

Analysis of Participating Life Insurance Contracts: A Unification Approach

Fair pricing of embedded options in life insurance contracts is usually conducted by using risk‐neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this article, we extend the risk‐neutral valuation concept with a risk measurement approach. We accomplish this by first calibrating contract parameters that lead to the same market value using risk‐neutral valuation. We then measure the resulting risk assuming that insurers do not follow perfect hedging strategies. As the relevant risk measure, we use lower partial moments, comparing shortfall probability, expected shortfall, and downside variance. We show that even when contracts have the same market value, the insurance company's risk can vary widely, a finding that allows us to identify key risk drivers for participating life insurance contracts.     

Management control in the transfer pricing tax compliant multinational enterprise

This paper studies the impact of transfer pricing tax compliance on management control system (MCS) design and use within one multinational enterprise (MNE) which employed the same transfer prices for tax compliance and internal management purposes. Our analysis shows immediate effects of tax compliance on the design of organising controls with subsequent effects on planning, evaluating and rewarding controls which reveal a more coercive use of the MCS overall. We argue that modifications to the MCS cannot be understood without an appreciation of the MNEs’ fiscal transfer pricing compliance process.     

Information technology,organizational design,and transfer pricing

We show how information technology affects transfer pricing. With coarse information technology, negotiated transfer pricing has an informational advantage: managers agree to prices that approximate the firm's cost of internal trade more precisely than cost-based transfer prices. With sufficiently rapid offers, this advantage outweighs opportunity costs of managers’ bargaining time, and negotiated transfer pricing generates higher profits than the cost-based method. However, as information technology improves, the informational advantage diminishes; the opportunity costs of managers’ bargaining eventually dominate, and cost-based methods generate higher profits. Our results explain why firms generally prefer cost-based methods, and when negotiated methods are preferable.     

论企业集团分权化管理及其内部转移定价机制的运用

本文从企业集团机制优化出发 ,从集团分权管理的角度入手 ,探讨转移定价机制问题。文章首先基于交易费用理论和制度经济学的团队效率观点 ,讨论了企业集团分权化管理下内部转移定价机制产生的经济基础 ,进而论证了分权化企业集团内部转移定价机制的合理运用问题 ,具体涉及基于协调和控制目的的转移定价机制的目标及其评价 ,转移定价机制与会计信息系统的关系 ,转移定价方法适用性的评价 ,在不同环境下———资本市场条件下及非资本市场条件下转移定价的运用规则。