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Very little attention has been paid to transfer pricing issues in the financial services sector Europe‐wide. This article reports on transfer pricing choices of UK deposit‐taking institutions. It is based on the results of an exploratory survey carried out on UK‐based banks and building societies. The main aim is to investigate their transfer pricing methods and objectives as well as the structure and line of responsibility for their transfer pricing decisions. The results of the survey reveal that the achievement of overall corporate goals is the highest ranked transfer pricing objective. Market pricing is the most widely used method among the institutions. Salient differences were however found between the transfer pricing choices of banks, on the one hand, and building societies, on the other.

Two companion articles have considered transfer pricing objectives and factors influencing the designing of these systems. This article, the last in the series, treats the topic of designing transfer pricing systems. Since many multinational firms have subsidiaries in the U.S., it is worthwhile to consider the U.S. Internal Revenue Service regulations regarding transfer pricing. Transfer pricing systems can be designed under a variety of alternative market scenarios. These topics are discussed in the first two sections of the article. The designing of profit‐oriented and cost‐oriented transfer pricing systems are considered in the next two sections. A mention of methods for selecting transfer pricing systems concludes the article.

Mostafa reviews seven studies in the UK which were conducted during the period 1967 to 1976 and thirteen undertaken in the United States between 1965 and 1979. The UK surveys concentrated mainly on the domestic market whereas in the United States some of the studies were extended to take account of international markets. Several conclusions were drawn from the review:

An examination of the philosophy and methodology of transfer pricing is provided. The concept of transfer pricing is that, within a manufacturing company, one department, on transferring its output to another department, should regard this transfer as a sale and that there should be a definite policy on setting the selling price. The most usual methods of transfer pricing – cost, cost plus, market price and dual pricing, are evaluated and worked examples of transfer pricing implications in practice, included.

In this paper the main objectives of transfer pricing are discussed as well as methods that have been suggested for each objective to be achieved. Also investigated are the interrelationships among transfer pricing objectives, methods, and circumstances under which companies operate

The purpose of this paper is to introduce transfer pricing to a broader community of business leaders who might not be familiar with the importance of this concept. Transfer pricing is a term used to describe inter-company pricing arrangements relating to transactions between related business entities. These can include transfers of intellectual property, tangible goods, services, and loans or other financing transactions. Why is Transfer Pricing Important? The potential for US federal business tax reform and the rigorous pursuit of transfer pricing adjustments by foreign countries are among the top global tax concerns facing senior US tax professionals.

General viewpoint based upon years of consulting work on the topic.

The relevance and importance of transfer pricing is emphasized to a larger business community.

This is an excellent introduction to the topic of transfer pricing.

The paper is valuable in that it can be read and appreciated by a wide range of audiences.

This study aims to examine the prevalence of transfer pricing and earnings management activities, and how they are impacted by corporate governance mechanisms.

Using the political cost theory, the study provides insights into how opportunistic managerial behaviours which have a strong link to profit shifting and tax evasion are driven by corporate governance using data from 16 listed firms for the period 2008–2020.

The results reveal that the transaction-based transfer pricing model is better than the index-based model and the accrual-based earnings management model suits the political cost theory more than the real earnings management metric. Board size and female CEO increase transfer pricing aggressiveness but board independence, CEO tenure, CEO nationality and female Board Chairwomanship reduce transfer pricing aggressiveness. The findings also reveal the role of multinational enterprise status, private ownership, industry type, firm size, financial leverage, asset tangibility and firm age. For accrual-based earnings management, board independence, CEO tenure, and female Board Chairwomanship significantly decrease earnings management. Other factors include private ownership, firm size, and firm age.

The findings of the study are relevant for shaping industry-level policies on earning management, transfer pricing and related-party transactions. Since these opportunistic managerial behaviours are the foremost drivers of tax avoidance and profit shifting, the findings of this study provide relevant insights for practitioners, tax and other regulatory authorities, policymakers and the academic community alike.

This is among the premier studies on the transfer pricing and earnings management nexus with corporate governance factors using the political cost theory, especially in the developing country context. It also reveals the significant impact of gender and suggests the need for gender diversity in corporate management.

For many global firms and corporate oligopolies, transfer pricing is essential. The transfer pricing literature as it is currently written is succinctly summarized in this study. The authors offer a thorough analysis of transfer pricing research in this study. This review sheds light on the top researchers, approaches, conclusions, theoretical and empirical gaps, and upcoming issues of transfer pricing research over the previous nine years through a methodical analysis of 29 research publications from the Scopus database (2014–2022). To help graduate students pursue further degrees in this area, such as a master's, thesis or PhD, this study will highlight five research issues.

This essay looks at five significant areas of tax avoidance and transfer pricing research. Some of these issues include determining the impact of transfer pricing regulations on various types of multinational corporations, assessing the effectiveness of transfer pricing regulations in preventing tax evasion, examining various policy options and determining the impact of transfer pricing on other economic outcomes using a systematic literature review.

The findings of this review demonstrate the need for transfer pricing research to look more closely at transfer pricing as a tool for business in addition to compliance and tax management.

This analysis concludes with future directions for transfer pricing research.

This paper aims to examine the applicability of real options methodology with respect to developing internal transfer pricing mechanisms. A pervasive theme in existing models is their inability to handle the dynamic and volatile nature of today’s business environment, as well as their lack of objective managerial flexibility. The authors address these and other issues and develop a transfer pricing mechanism based on Black–Scholes and the binomial options pricing methodology, which is better suited in today’s dynamic business environment.

The authors use a conceptual approach in developing theoretical justifications and show, practically, how a transfer price can be developed using two different real options pricing models.

The authors find that real options transfer price mechanism (real options framework [ROF]) can effectively deal with many of the issues that permeate a modern organization with complex multi-dimensional operations. The authors argue that uncertainty and behavioral issues commonly associated with setting transfer prices are better handled using a transfer pricing mechanism that preserves flexibility at the business unit level, the managerial level and the firm level. The approach allows for different managerial styles in both centralized and decentralized sub-units within the same organization. The authors argue that an open multi-dimensional framework using real options is suitable under conditions of uncertainty and managerial opportunism.

ROF-based transfer pricing may be significant in that firms can use it as a tool to manage an organization by setting the prices centrally and at the same time allowing managers to select the transfer price that best suits their specific situation and operating conditions. This may result in a more efficient and more profitable organization.

The contribution of the paper is the melding of the ROF from the finance literature with the accounting problem of setting a transfer price for items lacking a competitive market price. The authors also contribute to existing research by explicitly developing a framework that values managerial flexibility, takes into account uncertainty and considers the behavioral aspects of the transfer pricing process. The authors establish the conditions under which a generic real options model is a feasible alternative in determining a transfer price.

Transfer pricing stands at the heart of a MNE management control system. We review the theories of TCE and RBV and develop antecedents and consequences of transfer prices based on these theories. We propose viewing transfer pricing decisions through a TCE and RBV value chain framework. We review a sample of transfer pricing literature based on this theoretical perspective and show how it fits within our framework. Our framework suggests that setting transfer pricing policy is indeed a complex problem that includes many factors and has many consequences, some of which may be at odds with each other. We give some suggestions for future research based on this framework.