Transfer Pricing And Profitability Of Multinational Enterprises: A Conceptual Discourse

Transfer pricing is a technique used by multinational enterprises (MNEs) to shift profits out of the countries of their operation into tax havens. Shifting of profits by MNEs to their home countries through transfer pricing is common. Therefore, this study adopts a conceptual perspective in the examination of the issue of transfer pricing of the profit of multinational enterprises (MNEs) in Nigeria. It examines the issues in transfer pricing and the institutional set-up that has encouraged this as well as the factors affecting transfer pricing in MNEs. The paper progresses to present a review of theory and some pertinent studies on the issue of transfer pricing of MNEs. Finally, it highlights the challenges of transfer pricing and the strategies of overcoming it. The study concludes that sustainable development and effective implementation of policies to mitigate transfer pricing depend on a concrete understanding of the entire policy environment. Therefore, policy coherence is needed in this regard, particularly with respect to a robust policy on transfer pricing and taxes. The study recommends that institutional capacity be strengthened, particularly the legal framework as well as strong government effectiveness and capacity to curtail the humongous outflow of resources, as well as the implementation of reforms in the fiscal environment to make Nigeria benefit maximally from MNEs.