Transfer pricing risk management of intangible assets for multinational enterprises (MNEs)

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Shao, Cong (2024) Transfer pricing risk management of intangible assets for multinational enterprises (MNEs). PhD thesis, University of Nottingham.

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Abstract

This study explores transfer pricing risk management of intangible assets for multinational enterprises (MNEs). Transfer pricing is a controversial area, often involving the pricing of assets/goods/services sold or transferred between group companies, for which there is no external market and thus no market price. The pricing of transactions across international borders can mean that costs/income/profits, etc., can be attributed to higher/lower tax rate countries where MNEs have operations and so may not necessarily reflect the economic reality of intra-group transactions. The abuse of transfer pricing by some MNEs allegedly causes countries to lose billions in revenue, thereby forcing tax administrations to tighten regulations. However, with the constantly updated regulations, especially the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project, MNEs now must expend considerable effort and expense so as to be considered tax-compliant. Transfer pricing, therefore, has become a potential tax-compliance risk/burden. Because of certain factors associated with intangible assets (e.g., uncertainty, exclusivity, etc.), transfer pricing of such assets is now regarded as an especially challenging topic. Managing transfer pricing risks relating to intangibles is therefore of practical importance for MNEs. However, there are relatively few academic papers discussing this issue, and transfer pricing risk management of intangibles is, therefore, an important but under-researched research area. In order to contribute to the area, the thesis provides insights into how to manage transfer pricing risks concerning intangible assets.

Adopting Freeman’s stakeholder theory (1984, 2004) as a theoretical framework, 27 semi-structured interviews with four different groups working in transfer pricing (academics, Her Majesty’s Revenue & Customers (HMRC), people working within MNEs, and transfer pricing experts in the professions) and one focus group discussion(academics researching financial risk) were conducted in this qualitative research. By combining the focus group with interviews, the research findings indicate that, while the arm’s length principle and BEPS Action 8 are seen as the basic and latest transfer pricing regulations relating to intangible assets, there are various implementations in various countries concerning the fast-changing environment. Dealing with transfer pricing regulations on intangible assets has undoubtedly been subject to a wide range of risks, including scrutiny, high tax compliance costs, and reputational damage. By combining the interviews and the focus group discussion outcomes together, a general risk management framework in the context of transfer pricing of intangible assets for MNEs was created by incorporating the Committee of Sponsoring Organization of the Treadway Commission (COSO) framework. Therefore, the research makes both theoretical and practical contributions to transfer pricing risk management concerning intangible assets. On the one hand, this study make a contribution to addressing a clear knowledge gap regarding risk management and intangible assets, and on the other hand, provides practitioners and MNEs with a framework of how MNEs should manage the risks when dealing with the transfer pricing of intangible assets.

Key words: transfer pricing, intangible assets, risk management, MNEs.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Frecknall-Hughes, Jane
Faccio, Tommaso
Ferris, Katy
Keywords: Transfer pricing, Intangible assets, Risk management, MNEs
Subjects: H Social sciences > HG Finance
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 77170
Depositing User: Shao, Cong
Date Deposited: 19 Jul 2024 04:40
Last Modified: 19 Jul 2024 04:40
URI: https://eprints.nottingham.ac.uk/id/eprint/77170

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