IDEAS home Printed from https://ideas.repec.org/a/ejn/ejbmjr/v10y2022i2p137-152.html
   My bibliography  Save this article

The Arm’s Length Principle: A Panacea or Problem to Regulating Transfer Pricing Transactions by MNEs in Developing Countries

Author

Listed:
  • Favourate Y. Mpofu

    (University of Johannesburg, South Africa)

  • Eukeria Wealth

    (University of Namibia, South Africa)

Abstract

Transfer pricing manipulation by multinational enterprises is a big problem in developing countries, considering the increased levels of tax avoidance and evasion in these countries. The revenue lost through evasion and avoidance schemes as well as through aggressive tax planning robs developing countries of the much-needed domestic revenues to fund public expenditure. The repercussions of revenue inadequacies are evident in developing countries’ governments to adequately invest in education, tax administration, health and security, infrastructural development, and economic development. Most developing countries having enacted transfer pricing regulation, with the arm’s length principle are at the core of these regulations. This principle has been criticized in literature for its inefficiency and ineffectiveness in regulating transfer pricing in evolving economic times, while some researchers continue to maintain its relevance. In view of the conflicting views on the cogency of the arm’s length principle in developing countries, this paper sought to unpack this debate through an evaluative review to show the areas of disagreement and agreement among scholars. The review was motivated by the continued concern and discussions of tax evasion and avoidance by multinational enterprises through aggressive transfer pricing in developing countries. Through a critical literature review, this article assesses the applicability and relevance of the principle in developing countries. Findings reveal controversies in the availability of comparable data, continued abuse of transfer pricing as well as the difficulty in applying the principle in digital transactions and intangibles.

Suggested Citation

  • Favourate Y. Mpofu & Eukeria Wealth, 2022. "The Arm’s Length Principle: A Panacea or Problem to Regulating Transfer Pricing Transactions by MNEs in Developing Countries," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(2), pages 137-152.
  • Handle: RePEc:ejn:ejbmjr:v:10:y:2022:i:2:p:137-152
    as

    Download full text from publisher

    File URL: https://eurasianpublications.com/wp-content/uploads/2022/08/EJBM-10.2.4.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ronald B. Davies & Julien Martin & Mathieu Parenti & Farid Toubal, 2018. "Knocking on Tax Haven’s Door: Multinational Firms and Transfer Pricing," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 120-134, March.
    2. Biondi Yuri, 2017. "The Firm as an Enterprise Entity and the Tax Avoidance Conundrum: Perspectives from Accounting Theory and Policy," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(1), pages 1-9, April.
    3. repec:idq:ictduk:14118 is not listed on IDEAS
    4. Favourate Y. Sebele-Mpofu, 2020. "Governance quality and tax morale and compliance in Zimbabwe’s informal sector," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1794662-179, January.
    5. repec:idq:ictduk:17171 is not listed on IDEAS
    6. repec:idq:ictduk:14117 is not listed on IDEAS
    7. -, 2020. "Education in the time of COVID-19," Coediciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 45905 edited by Eclac.
    8. -, 2020. "Education in the time of COVID-19," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 45905 edited by Eclac.
    9. Abounabhan, Mary & Munoz, Laura & Mascagni, Giulia & Prichard, Wilson & Santoro, Fabrizio, 2022. "Should Governments Tax Digital Financial Services? A Research Agenda to Understand Sector-specific Taxes on DFS," Working Papers 17583, Institute of Development Studies, International Centre for Tax and Development.
    10. Boguslaw Waclawik, 2021. "Corporate Reporting in the Time of COVID-19: Analysis of Information Disclosed by Selected Companies Listed on the Warsaw Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 386-402.
    11. Elemes, Anastasios & Blaylock, Bradley & Spence, Crawford, 2021. "Tax-motivated profit shifting in big 4 networks: Evidence from Europe," Accounting, Organizations and Society, Elsevier, vol. 95(C).
    12. Bhat, Ganapati, 2009. "Transfer pricing, tax havens and global governance," IDOS Discussion Papers 7/2009, German Institute of Development and Sustainability (IDOS).
    13. Fritz Brugger & Rebecca Engebretsen, 2022. "Defenders of the status quo: making sense of the international discourse on transfer pricing methodologies," Review of International Political Economy, Taylor & Francis Journals, vol. 29(1), pages 307-335, January.
    14. Marko Kwaramba & Nyasha Mahonye & Leonard Mandishara, 2016. "Capital Flight and Trade Misinvoicing in Zimbabwe," African Development Review, African Development Bank, vol. 28(S1), pages 50-64, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elvie Barzo Gonzaga & Don Anton Robles Balida & Angelo Evangelio Gonzaga, 2023. "COVID-19 Precautionary Measures and Practices for Delivering Modular Distance Learning," World Journal of English Language, Sciedu Press, vol. 13(2), pages 1-98, March.
    2. Rima Wajih Hamed Daraghmeh, 2021. "Palestinian University Students' Perceptions of Distance Education in Light of the Coronavirus Crisis," Modern Applied Science, Canadian Center of Science and Education, vol. 15(5), pages 1-1, October.
    3. Gene Klein, 2021. "Viewing Gamification Design Limitations and Weaknesses through a Pandemic Lens," Societies, MDPI, vol. 11(4), pages 1-8, November.
    4. Ilona & Urbanyi-Popiolek, 2022. "New Insights into the Ferry Business in the Turbulent Environment," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 63-73.
    5. Amith Khandakar & Muhammad E. H. Chowdhury & Md. Saifuddin Khalid & Nizar Zorba, 2022. "Case Study of Multi-Course Project-Based Learning and Online Assessment in Electrical Engineering Courses during COVID-19 Pandemic," Sustainability, MDPI, vol. 14(9), pages 1-18, April.
    6. U. Y. Abdur Rahman, 2020. "Utilization of Indonesia’s Digital Economy to Invest in Human Capital and Provide Socio-Economic Support to Stimulate Economic Growth," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 6(6), pages 312-322.
    7. Rozina Afroz & Nurul Islam & Sajedur Rahman & Nusrat Zerin Anny, 2021. "Students’ and teachers’ attitude towards online classes during Covid-19 pandemic: A study on three Bangladeshi government colleges," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 462-476, April.
    8. Alfonso Infante-Moro & Juan C. Infante-Moro & Julia Gallardo-Pérez & Francisco J. Martínez-López, 2022. "Key Factors in the Implementation of E-Proctoring in the Spanish University System," Sustainability, MDPI, vol. 14(13), pages 1-16, July.
    9. Ana Iolanda Vodă & Cristina Cautisanu & Camelia Grădinaru & Chris Tănăsescu & Gustavo Herminio Salati Marcondes de Moraes, 2022. "Exploring Digital Literacy Skills in Social Sciences and Humanities Students," Sustainability, MDPI, vol. 14(5), pages 1-31, February.
    10. Mališ Sanja Sever & Sačer Ivana Mamić & Žager Katarina, 2022. "Landscape of e-Learning during Covid-19: Case Study of Economic Disciplines in Croatia," Business Systems Research, Sciendo, vol. 13(2), pages 8-27, December.
    11. Sorina Ioana MIȘU & Monica TRICULESCU, 2021. "Living And Teaching During Covid-19: The Damages And Benefits Of Telework," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 11(5), pages 129-137, October.
    12. Antonietta Cosentino & Paola Paoloni, 2021. "Women’s Skills and Aptitudes as Drivers of Organizational Resilience: An Italian Case Study," Administrative Sciences, MDPI, vol. 11(4), pages 1-18, November.
    13. Kareema Ali & Daniel Burgos & Saida Affouneh, 2023. "Educational Loss at Times of Crisis: The Role of Games in Students’ Learning in Palestine and Iraq," Sustainability, MDPI, vol. 15(6), pages 1-15, March.
    14. José M. Ramírez-Hurtado & Alfredo G. Hernández-Díaz & Ana D. López-Sánchez & Víctor E. Pérez-León, 2021. "Measuring Online Teaching Service Quality in Higher Education in the COVID-19 Environment," IJERPH, MDPI, vol. 18(5), pages 1-14, March.
    15. Maricar M. Navarro & Yogi Tri Prasetyo & Michael Nayat Young & Reny Nadlifatin & Anak Agung Ngurah Perwira Redi, 2021. "The Perceived Satisfaction in Utilizing Learning Management System among Engineering Students during the COVID-19 Pandemic: Integrating Task Technology Fit and Extended Technology Acceptance Model," Sustainability, MDPI, vol. 13(19), pages 1-18, September.
    16. Hülya Tuncer & Tuçe Öztürk Karataş, 2022. "Recommendations of ELT Students for Four Language Skills Development: A Study on Emergency Distance Education During the COVID-19 Pandemic," SAGE Open, , vol. 12(1), pages 21582440221, March.
    17. Monica Ioana Burcă-Voicu & Romana Emilia Cramarenco & Dan-Cristian Dabija, 2022. "Investigating Learners’ Teaching Format Preferences during the COVID-19 Pandemic: An Empirical Investigation on an Emerging Market," IJERPH, MDPI, vol. 19(18), pages 1-21, September.
    18. Seung-hye Jung & Joon-ho Kim & Ha-na Cho & Hae-won Lee & Hyun-ju Choi, 2021. "Brand Personality of Korean Dance and Sustainable Behavioral Intention of Global Consumers in Four Countries: Focusing on the Technological Acceptance Model," Sustainability, MDPI, vol. 13(20), pages 1-19, October.
    19. Victor Manuel Peinado-Guevara & Aldo Alan Cuadras Berrelleza & Jaime Herrera-Barrientos & Peinado-Guevara Hector Jose & Samuel Doeg Izaguirre-Gamez & Alejandro Urias-Camacho, 2021. "Knowledge and behavioral attitudes of the academic community of the high school and university levels towards the prevention of covid-19: a cross-sectional study in Guasave, Sinaloa," Technium Social Sciences Journal, Technium Science, vol. 17(1), pages 1-19, March.
    20. -, 2021. "The economic autonomy of women in a sustainable recovery with equality," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 46634 edited by Eclac.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ejn:ejbmjr:v:10:y:2022:i:2:p:137-152. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Esra Barakli (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.