Chapter 12 - International transfer pricing. The learning objectives for this chapter include: Describe the importance of transfer pricing in achieving goal congruence in decentralized organizations, explain how the objectives of performance evaluation and cost minimization can conflict in determining international transfer prices,. | Chapter Topics Transfer prices, corporate objectives, national tax laws. Cost minimization and performance evaluation. . transfer pricing rules. Five specific methods to determine arm’s-length prices. Advance pricing agreements (APAs). Enforcement of transfer pricing regulations. Learning Objectives Describe the importance of transfer pricing in achieving goal congruence in decentralized organizations. Explain how the objectives of performance evaluation and cost minimization can conflict in determining international transfer prices. Show how discretionary transfer pricing can be used to achieve specific cost minimization objectives. Describe governments’ reaction to the use of discretionary transfer pricing by multinational companies. Learning Objectives Discuss transfer pricing methods used in the sales of tangible property. Explain how advance pricing agreements can be used to create certainty in transfer pricing. Describe worldwide efforts to enforce transfer pricing regulations. Transfer pricing is the determination of price on the exchange of goods or services between related parties. These transfers are also referred to as intercompany transactions. Upstream transfers go from subsidiary to parent, while downstream transfers are from parent to subsidiary. Transfers also occurs between different subsidiaries of the same parent. A significant proportion of international transactions are intercompany transfers (in 2009 represented 40% of . total goods trade). Decentralization and agency problems Decentralized companies are organized by division and division managers have significant authority. This structure decomposes problems into smaller pieces. It also permits local decision making which provides more responsibility for division managers. An agency problem can occur since division managers make decisions in their self-interest. The manager’s self-interest can vary with the best interests of the company. Learning Objective 1 An effective accounting . | Chapter Topics Transfer prices, corporate objectives, national tax laws. Cost minimization and performance evaluation. . transfer pricing rules. Five specific methods to determine arm’s-length prices. Advance pricing agreements (APAs). Enforcement of transfer pricing regulations. Learning Objectives Describe the importance of transfer pricing in achieving goal congruence in decentralized organizations. Explain how the objectives of performance evaluation and cost minimization can conflict in determining international transfer prices. Show how discretionary transfer pricing can be used to achieve specific cost minimization objectives. Describe governments’ reaction to the use of discretionary transfer pricing by multinational companies. Learning Objectives Discuss transfer pricing methods used in the sales of tangible property. Explain how advance pricing agreements can be used to create certainty in transfer pricing. Describe worldwide efforts to enforce transfer pricing .
