Do firms with a centralized transfer pricing authority have more tax disputes and internal coordination conflicts?

Sven-Eric Bärsch, Jost Heckemeyer and Marcel Olbert ()
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Sven-Eric Bärsch: Flick Gocke Schaumburg
Jost Heckemeyer: Kiel University
Marcel Olbert: London Business School

Journal of Business Economics, 2023, vol. 93, issue 8, No 5, 1415-1450

Abstract: Abstract We examine whether a centralized transfer pricing authority leads to more tax disputes and internal coordination conflicts using unique survey data from German-speaking multinational companies. We find that disputes with local tax authorities are more likely when the tax department has ultimate authority over transfer pricing decisions. However, the evidence we find for internal coordination conflicts is less clear, with estimated effects showing some borderline significance in a jackknife analysis but not overall. Still, our results indicate that the effect of centralized transfer pricing on internal conflicts significantly interacts with the tax planning strategies in place and depends on how complex it is to price intrafirm trade. By documenting a potential cost of centralizing transfer pricing authority, our analysis answers calls for research into the deeper economic and business implications of how firms set up their transfer pricing function.

Keywords: Transfer pricing; Decision-making; Coordination; Tax risk (search for similar items in EconPapers)
JEL-codes: D20 D74 D81 H25 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11573-023-01146-8

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