Educational Case International transfer pricing in multinational enterprises Christian Plesner Rossing a,⇑ , Martine Cools b , Carsten Rohde a a Copenhagen Business School, Department of Accounting and Auditing, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark b KU Leuven, Faculty of Business and Economics, Naamsestraat 69, B-3000 Leuven, Belgium article info Article history: Received 16 July 2015 Received in revised form 22 February 2017 Accepted 24 February 2017 Available online xxxx Keywords: International transfer pricing Multinational enterprise OECD Transfer Pricing Guidelines Management accounting Responsibility accounting abstract Current curricula in management accounting stress the role of transfer pricing as a tool for measuring the performance of responsibility centers and their managers. Recently, how- ever, multinational enterprises (MNEs) have felt increasing pressure to comply with trans- fer pricing tax regulation. As a result, tax risk management considerations play a key role in the transfer pricing decisions of MNEs today. This case seeks to provide you with examples of the core principles of international transfer pricing, as well as to allow you to discuss international transfer pricing in the context of responsibility accounting. Specifically, the case study is a fictional MNE, allowing you to apply the OECD Guidelines in practice to cross-border transfers within an MNE, and to discuss the implications of tax-based transfer pricing for responsibility accounting. As a basis for working on the case study, the Appendix provides an overview of the ‘OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations’ (OECD, 2010), hereafter OECD Guidelines, upon which most transfer pricing regulations worldwide are based. It includes an introduction to the arm’s length principle, OECD-accepted transfer pricing methods, and comparability analysis procedures for identifying comparable transactions between inde- pendent parties. The case study assumes that you are familiar with responsibility account- ing and transfer pricing as discussed by standard management accounting textbooks. Ó 2017 Elsevier Ltd. All rights reserved. 1. Introduction Transfer pricing is useful for a variety of management accounting and control issues, including the performance measure- ment of responsibility centers and their managers. Management accountants and controllers have traditionally been involved in determining suitable transfer prices for such non-tax purposes. However, for intra-group cross-border transac- tions in multinational enterprises (MNEs), tax compliance has become a dominant concern attracting more attention from MNE management than the traditional management accounting objectives of transfer pricing. 1 MNEs’ emphasis on tax com- pliance stems from an increase in the scope and complexity of transfer pricing tax regulations. Generally, international transfer pricing is subject to increased attention from MNE stakeholders, including policy makers, tax authorities and trade institutions such as the Organisation for Economic Co-operation and Development (OECD). This includes OECD’s comprehensive action plan (OECD, 2013) set out as part of its project on base erosion and profit shifting (BEPS). The BEPS project seeks to prevent alleged tax avoidance in MNEs through various tax schemes including international transfer pricing as well as to reduce inefficiencies in http://dx.doi.org/10.1016/j.jaccedu.2017.02.002 0748-5751/Ó 2017 Elsevier Ltd. All rights reserved. ⇑ Corresponding author. E-mail addresses: cro.acc@cbs.dk (C. Plesner Rossing), martine.cools@kuleuven.be (M. Cools), cr.acc@cbs.dk (C. Rohde). 1 According to the Ernst & Young 2013 survey (Ernst & Young, 2013, p. 15), the highest priorities in transfer pricing strategies are ‘Tax risk management’ (66%), ‘Effective Tax Rate optimization’ (11%) and ‘Alignment with management/operational objectives’ (14%). Journal of Accounting Education xxx (2017) xxx–xxx Contents lists available at ScienceDirect Journal of Accounting Education journal homepage: www.elsevier.com/locate/jaccedu Please cite this article in press as: Plesner Rossing, C., et al. International transfer pricing in multinational enterprises. Journal of Accounting Education (2017), http://dx.doi.org/10.1016/j.jaccedu.2017.02.002