Transfer pricing: Intangibles, uncertainty and tax minimization

This study is motivated by regulatory concerns that U.S. based multinational enterprises use transfer pricing to generate income tax savings beyond levels expected by taxing authorities.

Essay 1 examines whether the presence of intangibles (balance sheet and R&D measures) enables multinational enterprises to benefit from transfer pricing of cross border transactions due to difficulty in establishing arm's length pricing for unique assets. I expect that companies with a higher composition of intangible assets reduce their income tax burden relative to industry peers.

Essay 2 focuses on uncertainty in transfer pricing. For products with external markets, the transfer price range narrows compared to that for unique assets due to comparable sales. I study two industries at opposing ends of the uncertainty spectrum for transfer pricing and expect that companies with more flexibility in establishing transfer pricing benefit from a lower worldwide effective tax rate.