Multinational Transfer Pricing: Evidence in the United Kingdom

The objective of this study is to investigate the international transfer pricing for intra-group transactions of multinationals from the perspective of international business. This study used a survey instrument to collect the relevant data on various environmental variables that may have implications for multinational transfer pricing decision-making processes. An analysis of the ratings of a set of 18 environmental variables showed that the compliance with tax laws and regulations in foreign countries is the most important one for formulating international transfer pricing policies by Anglo-based (i.e., US-based and Australia-based) and Asian-based (i.e., Hong Kong-based and Singapore-based) multinationals for intra-group transactions with affiliates in the UK. Two statistically significant results are found for both of the international transfers with UK affiliates. First there is a positive relationship between internal economic environment and use of cost-based transfer prices. Second there is a positive relationship between political issues and use of cost-based transfer prices.