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Tax-compliant transfer pricing of intra-group services: The soft drink case

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  • Plesner Rossing, Jacob Christian
  • Pearson, Thomas C.

Abstract

International transfer pricing and tax compliance are currently receiving a great deal of attention among tax policy makers and multinational enterprises (MNEs). In particular, the OECD Action Plan on Base Erosion and Profit Shifting (OECD, 2013) and subsequent updates to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD, 2017; OECD, 2022) have driven a shift among MNEs toward more compliance-based transfer pricing strategies. One of the significant challenges for MNEs relates to the international transfer pricing for intra-group services based on the OECD Guidelines, Chapter VII. This intra-group transaction is subject to massive attention from tax authorities as service cost allocations between MNE group companies are often significant due to highly centralized intra-group service arrangements. Current cost accounting textbooks largely ignore the implications of tax regulation for intra-group service cost allocations. This case study develops your critical thinking skills, particularly regarding how to determine tax-compliant transfer prices for intra-group services in accordance with OECD Transfer Pricing Guidelines, Chapter VII, and the arm’s length principle. Furthermore, it enhances your ability to reflect on the implications of tax regulation for cost and management accounting.

Suggested Citation

  • Plesner Rossing, Jacob Christian & Pearson, Thomas C., 2022. "Tax-compliant transfer pricing of intra-group services: The soft drink case," Journal of Accounting Education, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:joaced:v:61:y:2022:i:c:s0748575122000495
    DOI: 10.1016/j.jaccedu.2022.100815
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    References listed on IDEAS

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    1. Cools, Martine & Emmanuel, Clive & Jorissen, Ann, 2008. "Management control in the transfer pricing tax compliant multinational enterprise," Accounting, Organizations and Society, Elsevier, vol. 33(6), pages 603-628, August.
    2. Thomasson, Timothy S. & Wilkinson, Brett R., 2012. "Structuring a tax efficient international operation," Journal of Accounting Education, Elsevier, vol. 30(1), pages 143-159.
    3. Plesner Rossing, Christian & Cools, Martine & Rohde, Carsten, 2017. "International transfer pricing in multinational enterprises," Journal of Accounting Education, Elsevier, vol. 39(C), pages 55-67.
    4. Kenneth J. Klassen & Petro Lisowsky & Devan Mescall, 2017. "Transfer Pricing: Strategies, Practices, and Tax Minimization," Contemporary Accounting Research, John Wiley & Sons, vol. 34(1), pages 455-493, March.
    5. Campbell, Katherine & Helleloid, Duane, 2016. "Starbucks: Social responsibility and tax avoidance," Journal of Accounting Education, Elsevier, vol. 37(C), pages 38-60.
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