tailieunhanh - TRANSFER PRICING FOR COORDINATION AND PROFIT ALLOCATION

The two principal official firm size employment creation/destruction data sources differ somewhat, and as with many economic figures, they vary from year to year. BED figures show that a net million jobs were lost in 2008, 64 percent of which were from small firms. Over the past 15 years, small businesses have accounted for about 65 percent of the private-sector net job creation according to BED figures. (SUSB figures show small businesses accounting for about 90 percent of net new jobs through 2006.) The figures from both data sources are depicted in Figure 4. In non- downturn periods,. | Australian Journal of Business and Management Research 07-26 September-2011 TRANSFER PRICING FOR COORDINATION AND PROFIT ALLOCATION Jan Thomas Martini Department of Business Administration and Economics Bielefeld University Germany E-mail tmartini@ ABSTRACT This paper examines coordination and profit allocation in a profit-center organization using a single transfer price. The model includes compensations taxes and minority interests of two divisions deciding on capacity and sales. The analysis covers arm s length transfer prices which are either administered by central management or negotiated by the divisions. Administered transfer prices refer to past transactions and therefore maximize firm-wide profit net of divisional compensations taxes and minority profit shares only for given decentralized decisions. From an ex-ante perspective it is shown that adverse effects on coordination may result in inefficient divisional profits of which all stakeholders suffer. We motivate a positive effect of advance pricing agreements intra-firm guidelines and restrictive treatments of changes in the firm s accounting policy. By contrast negotiations ignore compensations taxes and minority shares but yield efficient divisional profits. Negotiations seem compelling as they perfectly reflect the arm s length principle. Moreover common practices such as arbitration or one-step pricing schemes allow the firm to engage in manipulation at the expense of other stakeholders. Keywords Transfer Pricing Coordination Profit Allocation Managerial Accounting Taxation Financial Reporting. 1. INTRODUCTION Transfer prices are valuations of products within a firm and represent a common and important instrument of managerial accounting financial accounting and taxation. Most of the objectives ascribed to transfer prices are captured by the functions of coordination and profit allocation. For coordinative purposes transfer prices affect performance measures of .