Understanding Transfer Pricing and its role in Multinational Corporation subsidiary revenue and tax reporting: the changing behaviour of MNCs around tax planning

Abstract

This research assesses the practice of Transfer Pricing and how Multinational companies use the method in relation to the subsidiary level profit and tax reporting. In addition, the study examines why the practice has been important for Multinationals historically while, in parallel, understanding the impact of the practice on the company itself in particular in respect of reputational damage for perceived tax avoidance. The study also looks at the potential for alternative approaches and how the OECD is bringing tighter control to practice via their BEPS programme. The research followed an Interpretivist philosophy and employs a qualitative methodology. The methodology is best described as a qualitative mixed method research approach using a combination of grounded theory and document analysis methodologies. Data is gathered via semi-structured one-on-one interviews with a range of tax expert stakeholders who themselves work in Multinational organisations; a secondary source of data is attained from existing publicly available articles and documents pertaining to high profile tax avoidance cases. The data gathered is analysed using a variant of a classical grounded theory qualitative data coding process to produce a set of results which take the form of a list of impact areas and establish patterns on how companies behave in relation to each impact area. The findings show that the tax environment is complex, has many stakeholder groups, has come under great scrutiny in recent times and has become a more regulatory landscape. The results from the interview phase of the research indicate that companies have shifted their emphasis from using transfer pricing and its tax structures as a tax avoidance strategy to ensuring that they are not only compliant with local regulations but also being seen to be paying a fair amount of tax from a public reputation protection perspective. This juxtaposes the data findings from the document analysis which highlights the aggressive tax strategies employed by well-known brands. This research does not attempt to draw theory from the data, but recommendations are given for further academic research and practice.