Can the integration of a tax-compliant transfer pricing system into the management control system be successful? Yes, it can!
Journal of Accounting & Organizational Change
ISSN: 1832-5912
Article publication date: 23 April 2019
Issue publication date: 5 June 2019
Abstract
Purpose
This paper aims to draw on Adler and Borys’ (1996) concept of an enabling use of bureaucracy to examine how the integration of a single-book tax-compliant transfer pricing system into the management control system is related to the perceived success of that transfer pricing system.
Design/methodology/approach
Based on survey data from Swiss multinational firms, the authors test a structural equation model. In addition, the authors conduct interviews with executives from three multinational enterprises.
Findings
The authors find that the integration of a tax-compliant transfer pricing system into the management control system may be perceived to be successful in achieving both tax compliance and internal (control) purposes. This is particularly true when the transfer pricing system is transparent and can be amended in the case of fundamental management control problems.
Research limitations/implications
The typical shortcomings of a survey-based research apply to this study. Future research could build on this model and more closely investigate the relationship between transfer pricing system integration and an enabling use of the transfer pricing system.
Practical implications
Based on this study’s findings, the authors recommend that a strong integration of tax-compliant transfer prices into the management control system should be accompanied by internal transparency and the ability to repair the transfer pricing system.
Originality/value
Prior research on the integration between transfer pricing and management control systems has either been analytical or based on case studies. This cross-sectional analysis provides reliable insights into different levels of integration, use and the success of transfer pricing systems.
Keywords
Acknowledgements
The authors would like to thank the following for their helpful comments and suggestions: Christian Nitzl, Christian Lohmann (discussant), Dirk Simons (discussant), Hui Chen and participants at the AAA Annual Conference 2015 in Chicago, the EAA Annual Conference 2015 in Glasgow, the VHB Annual Conference 2015 in Vienna, Verein für Socialpolitik (Committee of Accounting) Annual Meeting 2015 in Mannheim, Verein für Socialpolitik (Committee of Corporate Theory and Policy) Annual Meeting 2015 in Bendorf, The Accounting Symposium 2015 in Essen, the internal doctoral seminar at the University of Zurich, the research seminar at the Vienna University of Economics and Business, and two anonymous reviewers.
Citation
Hummel, K., Pfaff, D. and Bisig, B. (2019), "Can the integration of a tax-compliant transfer pricing system into the management control system be successful? Yes, it can!", Journal of Accounting & Organizational Change, Vol. 15 No. 2, pp. 198-230. https://doi.org/10.1108/JAOC-09-2017-0077
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited