Incentives to Transfer Profits: a Japanese Perspective

The intense interest in transfer pricing problems shown by academics and tax practitioners alike has deepened with the publication (on 8 October 1997) of the UK Inland Revenue’s consultative document and draft legislation on transfer pricing. In particular there has been a spate of professional commentary and queries (for example, see Atkinson and Tyrrall, 1997; Bunn, 1997; Taylor, 1997; Antzcak, 1998; Fairpo, 1998). The prevailing tone of many articles is an agreement that something needed to be done in this area to address a perceived problem in the growth and development of multinational corporations. The removal of international trade barriers has created a global economy with unprecedented world trade. World trade has increased by a factor of 16 since 1950 while total world output increased only 5.5 times. Intragroup transfers are a large proportion of this trade. Tax authorities are acutely aware of the need to protect their tax base by policing transfer pricing more actively than in the past. (Atkinson and Tyrrall, 1997, p. 18) Goods which may be subject to transfer pricing account for about half of world trade. (Adams, 1997) Much of the academic research on transfer pricing has concentrated on the global aspects of income shifting (for example see Harris, 1993; Harris et al., 1993; Klassen et al., 1993; Jacob, 1996).