INTERNATIONAL TRANSFER PRICING

by Sabaruddin

Abstract

This paper analyzes the problems encountered by a Multinational Corporation in settimg the prices for its exported products to subsidiaries. When the corporation chooses a certain method of

International Transfer Pricing, it must consider not only profit maximization, but also such other factors as performace evaluation, governments and tax authorities in both home and host countries. This paper

also discusses in detail several International Transfer Pricing Methods including the Method allowed by Tax Regulation and the determinant aspects that influence the choice of the price. The result of the analysis is to recommend the use of the Market-based Price since this method is considered as the most appropriate one that meet the interest of all the concerned parties.

Keyword

INTRODUCTION

Market Price, Profit Maximization,

Per- One of the most difficult problems for a Multinational

formance, Evaluation, Corporation is to determine the prices at which goods, Tax Regulation.

services, and technology are traded between related subsidiaries in different countries. The problems arise since

Penulis

several aspects of international business environment affect Sabaruddin,

Dosen the setting of an International Transfer Pricing (ITP). A Fakultas Ekonomi Uni- multinational manager will consider such aspects as rates versitas Cokroaminoto of income taxation, duties and quotas imposed on imported Yogyakarta

materials, foreign market competition, managerial preference for risk avoidance through consideration of risks associated

with exchange rate fluctuations and rates of inflation, capital flows restrictions and currency regulations imposed by

a host government, the form of affiliate’s company, and income smoothing consideration. In addition, the behavioral

dimension of managerial rewards and controls through performance evaluation will be considered in selecting price method as an International Transfer Pricing basis. The use

KO M P E T E N S I of the method often result in a conflict among all concerned

Jurnal Ekonomi,

parties such as transferring and receiving divisions within

Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09

the MNC and governments and tax authorities in both home

and host countries.

Fak. Ekonomi - Universitas

Cokroaminoto Yogyakarta

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

In this paper, I will discuss the role the corporate profits are likely to suffer. of International Transfer Pricing within For example, if a US parent company’s an MNC, several determinants factors, manager concentrate his/her productive various methods used in common resources on producing a product and allowed by tax regulation, ITP in for a sale to his/her subsidiary in practices, the impact of choosing a Indonesia only because of low tax rate method on the concerned parties, and consideration, 35% compared to 42% the appropriate method for ITP.

in the USA, that stimulates him/her to underpricing the product, he/she may

DISCUSSION

be maximizing the subsidiary’s profit at the expense of the parent’s profits. If so,

The Role of International Transfer

the ITP is guiding the manager away

Pricing

from profit maximization rather than promoting it as it should (Benke and

A multinational manager should consider the two most important role of International Transfer Pricing (ITP);

to optimize an to promote goal congruence and to organization’s profits, the transfer price enhance

theory,

performance evaluation. should be selected. So it motivates Goal congruence could be promoted and guides managers to choose their

through global profit maximization inputs and outputs in coordination with with the objective of minimizing overall

corporate’s income taxes and import “Handbook of International Accounting” duties, reducing environmental risk such as exchange risk, and accelerating the as necessary for efficient International return on investment.

Transfer Pricing system. The system should:

ITP of a Multinational Corporation (MNC) should encourage headquarter - provide

adequate profit manager as well as subsidiary manager

to evaluate to maximize corporate profits. At

measurement

performance of foreign subsidiaries the same time, an MNC manager is

and their managers in term of their responsible for maximizing the profits

controllable divisional contribution to or minimizing the cost of responsibility

overall profits.

center within the MNC. If there is a conflict between maximizing the corporate’s - provide sufficient information to

profit and responsibility center’s profits, top management to be used as

Sabaruddin

International Transfer Pricing

guidelines in managerial decision many forms such as the return making.

on investment, residual incomes, and variances from budgeted and

- increase the overall profit rate of

standard cost.

the MNC; in other words, the use of The ITP technique should not distort International Transfer Pricing system performance evaluation of the affiliates must enhance overall performance (parent’s and subsidiary’s company). The of the MNC.

technique should not allow manipulation or cause distortion of profits or costs of

- motivates foreign subsidiary either affiliate involved in the transfer, manager to increase their efficiency that means creating the illusion of better

and maximize their divisional profits or worse performance than has actually in harmony with the objectives of the occurred. Because of 7% tax differences,

top management. the US parent company transfer goods to its Indonesian subsidiary made at cost.

- minimize the international transaction In this case, the parent does not make cost for an MNC by minimizing

a profit, whereas the subsidiary gets all global

the profit on the product that it sells to foreign exchange risks, currency unrelated party (externally). This cost- manipulation losses, and conflict based price result in an understatement with the foreign government’s of the parent’s income and an policies. Furthermore, Belkaoui overstatement of its subsidiary’s profits.

Therefore, this method has impeded transfer pricing should be consistent the performance evaluation. Profit no with the goal of maximizing both longer has the same meaning. Return

company and divisional profits; on investment will not be accurate. Transfer pricing should insure comparison of financial statement with

goal congruence between units. In other subsidiary within an MNC may be addition, Benke and Don Edwards difficult as will comparison with similar

subsidiary in the other MNC. Transfer Pricing also should enhance

performance evaluation. Through Income Tax Minimization

performance evaluation, the MNC, in part, determine the extent to

As mentioned before that one of an which the goal of the overall profit MNC objective in determining ITP is maximization is being achieved. to minimize its total tax expense. This

Performance evaluation can take objective can be achieved by shifting

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

profit from a country (e.g. home base) corporate income tax is 7% lower than with a high tax rate to a country (e.g. that in the USA (35% vs 42%) rather than

subsidiary) with a low tax rate. Generally, set it in Japan where income tax rate is the lower the income tax of the host the same as that in the USA (42% vs country, as compared to that of the home 42%). Holding other variables constant, country, the more the ITP from home the US MNC would attempt to shift profit to host country transfer would reduce by underpricing its product transferred the total tax expense (Benke and Don to its subsidiary in Indonesia.

the total profit obtained by the MNC. If US parent company, for example, Considering income tax differences, in Indonesia, the company can yield a

some MNCs prefer to establish their higher global profit of $10,202,500 by subsidiaries

Developed setting a low transfer pricing ($9,000/unit), Countries (LDCs) where their local compared to $9,992,500 if the company government offer a lower income tax set high transfer price ($12,000/unit). rate. The US home base MNC prefer to set its subsidiary in Indonesia where of the profit.

Global Corp. ________________________________________________________________

Car-USparent Car-IND.subs.

1. Low Price Sales

$25,000,000 Cost of sales

___________ Gross margin

$17,000,000 Other expense

___________ Income before

$15,750,000 Income tax

___________ Net income

Sabaruddin

International Transfer Pricing

2. High price. sales

$25,000,000 Cost of sales

___________ Gross margin

$17,000,000 Other expense

___________ Income before

$15,750,000 Income tax

___________ Net income

$9,992,500 Shifting profit is not a simple matter

Transfer pricing may be used to for the MNC because US tax law requires shift profit from a regular US domestic additional income tax for underpricing company to a specially-taxed company the transferred product. The Internal owned by US MNC. Revenue Service (IRS) under section 482 may distribute, apportion or allocate

By transferring products at low gross income or deduction among price from the US parent company to the business if it determines that it is special corporation, the parent’s taxes necessary to do so in order to prevent are minimized. The profit accruing to evasion of taxes or reflect clearly the the special corporation from the transfer

income of the business involved (Benke is taxed at preferential rate, thereby minimizing the global tax of the MNC.

A US MNC manager needs to design Transfer pricing may also be used to transfer pricing properly. If the transfer maximize the benefit of the foreign tax pricing system is designed to meet the credit. The availability of a foreign tax existing requirements of the treasury credit depends on the amount of foreign regulations and is compatible with the source income giving rise to foreign tax. section 482, it may be possible to shift

A company with excess credit available profit from US parent company to its could benefit by the transfer of a product Indonesian subsidiary with a lower tax at low price to foreign subsidiaries which

rate. would then resale the product at high

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

price (Cowen, Phillips, and Stillabower, in the exporting country. Underpricing strategy could maximize global profit of an MNC if products are transferred

Import Duties

to affiliate in a country which offers a lower income tax and impose a high

In addition to income taxation, import duties. In the case of Indonesia, import duties also can be minimized. A its government impose high import parent company transferring products to duties for several luxury goods such

a subsidiary domiciled in a high import as automobile. Automobile industry like duties, for example, could reduce the total Ford corporation could save its fiscal cost for import duties by underpricing the expense by lowering the price of its product sent to the subsidiary. Moreover, automobiles sent to Indonesia. it could minimized the duties impact on market penetration as to compete with a

Table 2 shows the calculation of foreign protected industry.

global profit with income tax and import duties consideration all together. The

A multinational manager has to example is the same with the previous consider the import duties along with income tax before deciding the price imposed in Indonesia. By setting a low of products being transferred. A MNC transfer price, the company could yield

could not obtain import duties benefit by much higher profit ($4,352,500) than if it lowering the price if income tax rate in set a high transfer pricing ($2,192,500).

the importing country is higher than that

Sabaruddin

International Transfer Pricing Table 2 ITP and Income Tax and Import Duties Considerations.

Global corp. _________________________________________________________________

Car-US parent Car-IND.subs.

Sales

$25,000,000 Cost of sales

8,000,000 Import duties

___________ Gross margin

$8,000,000 Other expense

___________ Income before

$6,750,000 income tax

___________ Net income

2. High price. Sales

$25,000,000 Cost of sales

8,000,000 Import duties

___________ Gross margin

$5,000,000 Other expense

___________ Income before

$3,750,000 Income tax

___________ Net income

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

Market Penetration and Competitive of a firm’s monetary assets, setting high

Factors

transfer pricing on products supplied to

a subsidiary domiciled in an inflationary In order to penetrate a competitive environment could remove as much

foreign market, a parent company cash from the subsidiary as possible. establish a foreign subsidiary and supply the subsidiary with inputs at a lower price

Balance of payment problems often in comparison to foreign market price for lead foreign government to devalue their the same inputs. These price subsidies currencies, impose foreign exchange could gradually be removed as foreign control, and impose a number of subsidiary hold a competitive position in restrictions on the repatriation of profit the foreign market. Similarly, underpricing from foreign-owned corporation. Potential strategy could be used to protect an losses from exposures to currency existing position from deleterious effect devaluation may be avoided by shifting of increased foreign competition(Choi funds to the parent corporation or related

affiliates through high transfer pricing for consumer products such as food strategy. Indonesia has experience to

product is so large and competitive, that devalue its currency (Rupiah) several setting a lower price for such a product time when it faced a budget deficit as a seems to be appropriate.

result of a decrease in oil price. Such a decrease make Indonesian government

To improve a foreign subsidiary to devalue rupiah against dollar and access to local capital markets, its other foreign currencies as to make its

reported earnings and financial position budget balance. In the case of exchange could be bolstered by setting low transfer controls, for example, once Indonesian

prices on the subsidiary’s inputs and government restricts the amount of high transfer prices on its outputs (Choi foreign exchange available for importing

luxury products, lowering transfer prices on the imported products would allow

Enviromental Risk Minimization

Indonesian subsidiary impacted by the controls to acquire a larger quantity of

In contrast to the market penetration the desired import than would otherwise and competitive considerations that necessitate a low transfer price setting, In certain circumstance, when an MNC

the risks of severe price inflation faces the difficulties of profit remittance requires a high transfer prices. Because to the home country, it can overpricing inflation erodes the purchasing power the transferred products, to obtain some

Sabaruddin

International Transfer Pricing

margin of cash as an earlier return. This toward income smoothing. With this aim, can significantly reduce the risk in its an MNC could exclude some of the unfit investment (Lin, Lefebvre, and Kantor, subsidiaries and wash all of losses of

the group to those subsidiaries. Through this manipulation, the MNC could create

The Form of Investment

a smoothed income. The market, investors/shareholders, and the partner The form of investment is also of a joint venture would be glad to see a considered as an important factor for an smooth and steadily increase in income MNC in choosing its ITP policy. According and its impact on the MNC financial

position as a whole. To make operating results look good, the corporation must

would more probably set high price for forecast the trend of future income first, its products transferred to its foreign then it adjust the forecasted income with subsidiary if the MNC has only invested the transfer pricing policy, underpricing in a joint venture than if it has invested in or overpricing, to result in a desired

a wholly owned subsidiary. The reason income. is that a joint venture company results in

only 50 percent profit share. By applying Pricing

percent of overpriced portion. Of course, in a joint venture, approval for such

As mentioned in previous section overpriced transfer may be difficult and that ITP should promote global profit

take a long time to receive. Indonesia maximization as well as improve is an open country for foreign direct performance evaluation. To meet these investment, both for wholly-owned and objectives, a multinational manager

a joint venture company. In the case needs to adopt and develop a transfer of the form of investment, Indonesian pricing method that is ensuring goal government prefer a joint venture to a congruence, being fair to all concerned wholly-owned company especially for parties, and minimizing conflict between machinery and hi-tech products.

divisions. Some authors (Belkaoui,

Income Smoothing

various transfer pricing methods that Besides reducing the risk of investment are used in practice. The most common

and increasing return on investment of methods are market-based price, cost-

a joint venture, ITP also could be used based price, and negotiated price.

Market-based price

A market-based transfer pricing is the price at which transferring division would charge the same price to receiving division as it would charge to outside customer in open market transaction. This method is considered as the most representative of an arm’s-length price. It provides an objective measure of value for the transferred products and it may contribute the best information to performance evaluation because resource allocation decision involving investment return and capacity are closely related to existing supply and demand market conditions. In addition, this system encourages managers to

be more concerned with cost control since cost allocations are based upon

realistic rather than artificial prices there are some handicaps to applying

market-based transfer pricing. Firstly, in many countries such as Indonesia, the

market is not so efficient and perfect, and the price are frequently subject to governmental controls. In this inefficient and imperfect market, one seller and

buyer can affect the market price, rendering it inapplicable as an effective transfer price. Secondly, even if the market is perfect, the comparability of

the product is difficult to make. Lastly, there may be a problem if a ready market

price of the transferred product does not exist.

Cost-based price

Cost-based transfer pricing may be used as an alternative if market prices are not available or not applicable. This

system classified cost as actual cost, standard cost, and marginal or variable

cost. Actual cost-based price has the

advantage of being measurable, verifiable, and readily available because it is based on the historical full cost of

the transferred products. Actual cost will motivate transferring division if it includes full cost and some markup. Full cost plus is set up as a way of approximating the market price. This price may be better than the actual market price when quality, brand name, and other relevant characteristic are not comparable. However, the actual full cost-based

price may transfer the efficiency of the transfering division to the receiving

division due to the absorption cost that includes all direct and indirect expenses. It also may lessen transferring division’s incentive to control cost and can impede the search for technological progress by manufacturing division (Belkaoui,

The weaknesses of the actual cost- based price can be eliminated by setting transfer pricing based on standard cost. The method requires the transferring division to comply with the standard cost

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

Sabaruddin

International Transfer Pricing as a guidance to incur cost. Therefore, freedom to bargain not only with another

using a standard cost as a transfer pricing division within an MNC, but also with an basis can eliminate the inefficiency of the external parties. This freedom will avoid transferring/manufacturing division. At the bilateral monopoly which exists

the same time, it may create an incentive when the divisions are allowed to deal to control cost, when it is compared with with only themselves. Some writers, as actual cost.

that prices negotiated in arm’s-length An MNC using a transfer price based bargaining by division managers help on either the full actual cost or the full accomplish goal congruence. Moreover, standard cost may face two situations. they oversee the method as compatible First, the two cost may be higher than the with profit decentralization, ensuring the market price. Second, those cost include division manager’s freedom of action both direct and indirect costs (variable and increasing their accountability for

and fixed). The indirect cost can result profits. from arbitrary allocation procedures. The

fixed costs can be committed costs that Methods under section 482 and are incurred whether the manufacturing related regulations

division operates at full or less than full capacity. Thus, the receiving division

The purpose of section 482 is “to may feel that either the indirect cost or place a controlled taxpayer on a tax

the fixed cost should not be included in parity with an uncontrollable taxpayer by the determination of the transfer price. determining according to the standards

When this situation arises, Belkaoui of an uncontrolled taxpayer, the true taxable income from the property and either marginal or variable cost, as a business of a controlled tax payer”. transfer pricing basis.

The section 482 requires international transfer pricing reflects an arm’s-

Negotiated price

length principle. That is, intercompany transfer pricing should be established

A negotiated transfer price is the based upon similar transaction between price set based on the agreement unrelated buyer and seller. between the transferring division and the receiving division. This method requires

In determining the arm’s -length these division deal with one another price for the sale of tangible property in the same manner as they deal with (e.g. product) between a US parent unrelated parties. Every division has a and foreign subsidiary, section 482

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

and related regulations allow the use (reseller) subtracts the appropriate of several pricing methods such as the markup percentage from the resale comparable uncontrolled price method, price, the resulting balance should be the resale price method, the cost plus an approximation of an arm’s-length method, and other acceptable methods transaction. The method can be used only

if the appropriate markup percentage can be determined and if an accurately

Section 482 specifies that when determinable amount is added to the establishing transfer price, a company value of the transferred product by the (an MNC) first must attempt to apply the buyer (reseller). comparable uncontrolled price method,

in which the price is set by reference to Cost-plus method is suggested to price used in comparable transactions use if both the comparable uncontrolled between companies independent from price method and the resale price each other. This method is similar to method are not applicable. The cost- the market- based price method as plus method, which is similar to the discussed before, but the section 482 cost-plus-based price mentioned in implicitly recognizes that the perfectly the previous section, is a work-forward competitive market necessary to support method of constructing an arm’s-length the use of the market-based price rarely price. The cost-plus price is equal to full occur. Therefore, it allows the use of the cost (actual or standard) plus appropriate adjusted market price, which is used with profit percentage similar to that earned slightly imperfectly competitive markets, by division or other companies in similar but restricts the number of adjustments transactions with unrelated parties. that can be made to perfect market- based price.

In addition to the three methods, the section 482 and related regulations allow If comparable uncontrolled price the use of some appropriate method of method are not applicable, section pricing if it is comparable to the pricing 482 recommends an MNC to use the which would be charged to an unrelated resale price method. This method is party. based on the belief that after a buyer

Sabaruddin

International Transfer Pricing Table 3 Shows a summary of transfer price systems based on management’s and

tax authori ty’s point of view (reedited from Cowen, Phillips, and Stillabow-

Management Control Systems

Income Tax Methods

a. Comparable uncontrolled price method

b. Resale price method is used if comparable uncontrolled price are not available

2. Cost-based price

2. Cost-plus pricing

a. Actual cost

a. Actual costs are not allowed the IRS

b. Cost-plus markup

b. The cost-plus markup approach may

be used if market prices are not

2) Standard cost-plus

available.

c. Marginal cost

c. Marginal cost may be used if the economic circumstances warrant such use

d. Variable cost

d. Variable cost (the same)

3. Other method

3. Other methods are acceptable Negotiated price

if the transfer price is comparable to a price which would be charged to unrelated party.

International Transfer Pricing in

1. Overall profit to the company.

Practice

2. Differentials in income tax rates and income tax legislation among

surveying nine-eight companies that

countries.

judge the importance of environmental variables that multinational corporations

3. Restriction imposed by foreign usually consider when formulating their

countries on repatriation of profits or international transfer pricing policy. He

dividend.

variables) as follows :

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

A survey conducted by Business subsidiaries in foreign countries.

4. The competitive

position

International, in Choi and Mueller

5. Rate of customs duties and customs legislation where the company has use most frequently cost-plus a markup operations.

and market transfer pricing methods respectively. In contrast, non-US MNCs

6. Restrictions imposed by foreign generally employ some variant of market countries on the amount of royalty or and, less frequently, cost-plus a markup management fee that can be charged

methods. In the same book (Choi against foreign subsidiaries. evidence that larger companies tend to

7. Maintaining good relationship with favor the use of cost-based as opposed host governments.

to market-based transfer prices since they tend to operate in more oligopolistic

8. The need to maintain adequate cash markets in order to protect their market flows in foreign subsidiaries.

position from new entrance companies.

9. Import restrictions imposed by Highly decentralized operations that foreign countries.

provide maximum autonomy to subunit managers tend to use a market price as their transfer pricing basis. Meanwhile,

subsidiaries. centralized operations seems to be appropriate with the cost-based transfer

The lists seemed to indicate that the price. Additionally, Business International companies tended to use underpricing indicated that non-US MNCs tended strategy for their transferred products. to guarantee their local managers with

The overall profit, income tax rate,

a greater autonomy than did their US competitive position, custom duties, cash counterparts. As a result, the first group flows adequacy, and import restrictions tended to base their transfer pricing

factors stimulate those companies to decisions on negotiations between unit implement such a strategy. Underpricing managers, whereas the second group policy tended to utilize cost-based price to be split between negotiated price and

those determined at central office. 26.8% of number of methods used by

those companies is full production cost Legal environment such as tax law (actual or standard) plus a markup. This is considered as an influential factor number is slightly above that of market that lead MNCs to utilize market-based

Sabaruddin

International Transfer Pricing prices to the extent that these prices are by a multinational manager who face

more objective than cost-based price for an environmental risk. This strategy income tax calculation basis.

will be utilized for products transferred to an affiliate in an inflationary country

What Price ?

where its government has a balance of payment problems. This, in turn, will lead

Considering income tax differentials, the government to devalue its currency management

practice and restrict a profit repatriation. By underpricing strategy as to maximize setting high transfer pricing, the MNC

prefer

its overall profits. However, this strategy can remove as much cash as possible will hinder performance evaluation since and acquire an early return from its its transferring division’s profit is shifted subsidiary. However, if the product to the receiving division. Moreover, this transferred is a competitive product,

strategy is opposed by tax authorities applying the strategy will hurt the in the transferring division country due receiving division. It will loss its market to tax evasion/avoidance resulted from share that, in turn, will erode profit of the income manipulation.

receiving division, even it will result in a lost of the division. Thereby, decreasing

A multinational manager tends to its performance. set a lower transfer price as to reduce

expenses for import duties. In addition, CONCLUSION AND by underpricing the transferred product, RECOMMENDATION

a company can penetrate market of protected domestic industry. The lower

Setting International Transfer Pricing the price set, the more expenses can is not a simple matter since it involves

a number of influential factors that a competing with the domestic industry. multinational manager needs to consider

be reduced and the more capability of

Regardless of performance evaluation, before he or she comes to a decision for tax authority, and host government such a price. problems,setting transfer price based on

variable cost will maximize global profit The manager needs to account not since import duties and total income only how to maximize the company’s tax expenses could be minimized, total profit, but also how to evaluate its besides increasing profit resulted from a divisions’ performance fairly, besides

competitive position.

governments and tax authorities in home and host countries. Overpricing policy that at least

satisfying

reflects to market price will be undertaken

KOMPETENSI Jurnal Ekonomi, Manajemen & Akuntansi Vol. 7 No. 3 September - Desember ‘09 40-56

Based on the previous analysis, I list factors of International Transfer Pricing, several methods for each of determinant as follows:

Determinant

Strategy

Suggested Methods

Profit maxi

Variable or

Mkt. price Full Std. Cost

2. Import duties

Underpricing

Variable or

Full Std. Full Std. Cost

Cost Plus

Full Std. Competitive factor

3. Mkt. penetration/

Underpricing

Variable or

Full Std. Cost Cost Plus

Full Std. Cost Full Std. restrictions on import

4. Foreign currency

Underpricing

Cost plus

Mkt. Price adj. Mkt. Price in foreign count.

5. Inflationary env.

Overpricing

to inflation

Neg. Price

Mkt. Price adj. Mkt. Price (devaluation)

6. Currency risk

Overpricing

to devaluation Neg. Price

7. Form of investment:

a. Joint-venture

Overpricing

Mkt. Price

Mkt. price

Full Std. Cost Full Std. subsidiary

b. Wholly-owned

Underpricing

Cost Plus

8. Income smoothing

Over/Under

Neg. Price

pricing

Sabaruddin

International Transfer Pricing

To meet the interest of all concerned Lin, L., Lefebvre, C., and Kantor, J. parties, it is recommended to use market-based price method as the most

International Transfer Pricing and appropriate transfer pricing basis since

the Related Accounting Issues, with this method provides the most reliable

Particular Reference to Asian Pacific value and measurement of a reported

Countries,” The International Journal income.

of Accounting. 28: 49-69.

REFERENCE

Merville, L. J, and Petty, J. W. 1978. “Transfer Pricing for Multinational Belkaoui,

Firm,” The Accounting Review.: 935- Accounting: Issues and Solutions.

A. International

Westport, Connecticut: Quorum books.

Benke Jr., Ralph L. and Don Edwards, J. on Multinational and Tax Issues,” Management Accounting.: 22-26.

and Uses. New York: National Association of Accountants.

Practices in the United States and Japan. New York: Praeger

International Accounting. New York:

Publishers.

John Willey & Son, Inc.

International Accounting. 2 nd

INTERNATIONAL TRANSFER PRICING