Multinational Corporations’ Transfer Pricing

Abstract

Transfer pricing in multinational enterprise groups has significant implications for both corporate decision making and the allocation of taxable profits between jurisdictions. In a context of increased scrutiny of profit shifting and continuing implementation of the Base Erosion and Profit Shifting reforms, tax administrations expect reported outcomes to follow value creation and the control of economically significant risks, while multinational corporations seek administrable approaches that support business strategy. This thesis examined how the transfer pricing policies and public disclosures of four large multinational corporations headquartered in the United States and the European Union, Microsoft, The Coca Cola Company, the Volkswagen Group and L’Oréal, align with the arm’s length principle and recognised transfer pricing methods. The scope covered descriptions of functions, assets and risks, references to transfer pricing methods, and evidence on documentation and governance in public sources.

The theoretical framework drew on the arm’s length principle, the internationally recognised transfer pricing methods, and the guidance provided in major international manuals and policy reports, as well as academic research on profit shifting and tax motivated transfer pricing. The study was carried out as a qualitative multiple case study that applied theory driven comparative content analysis to audited consolidated financial statements, universal registration or annual reports, selected tax strategy statements and governance disclosures. Public documents that were available and accessible in the mid 2020s were used, so that the analysis reflected the contemporary regulatory environment and disclosure practices. The material was coded along the main themes of the framework, namely functions, assets and risks, method selection and governance.

The findings indicate that across the four cases, core value creation was consistently associated with central ownership of key intangibles and strategic functions, while local entities were typically presented as carrying more routine manufacturing, distribution or marketing roles. Public filings provided relatively detailed information on business models, tax outcomes and governance, yet were more reserved in explicitly identifying transfer pricing methods and benchmarks, particularly in situations involving complex intangibles. Overall, the analysis suggests that the examined companies largely present narratives that are consistent with the arm’s length principle at a high level, but external users can only partially assess specific method choices and comparability evidence on the basis of public disclosures alone. The thesis concludes that greater transparency in describing method selection and governance would support both stakeholder understanding and the evaluation of alignment between transfer pricing outcomes and value creation.