Do firms with a centralized transfer pricing authority have more tax disputes and internal coordination conflicts?

We examine whether a centralized transfer pricing authority leads to more tax disputes and internal coordination conflicts using unique survey data from German-speaking multinational companies. We find that disputes with local tax authorities are more likely when the tax department has ultimate authority over transfer pricing decisions. However, the evidence we find for internal coordination conflicts is less clear, with estimated effects showing some borderline significance in a jackknife analysis but not overall. Still, our results indicate that the effect of centralized transfer pricing on internal conflicts significantly interacts with the tax planning strategies in place and depends on how complex it is to price intrafirm trade. By documenting a potential cost of centralizing transfer pricing authority, our analysis answers calls for research into the deeper economic and business implications of how firms set up their transfer pricing function.