Quantifying the various trade-offs is complicated for the reason that environmental influences has to be viewed as as a group, not individually. Take into consideration, by way of example, the difficulties in measuring the trade-offs surrounding transfer pricing policies to get a subsidiary positioned within a country with high revenue taxes, high import tariffs, price tag controls, a thin capital market place, chronic high inflation, foreign exchange controls, and an unstable government.
As we've noticed, a high transfer price tag on goods or services offered for the subsidiary would lower the subsidiary’s revenue taxes and take away excess money for the parent provider. Having said that, a high transfer price tag could possibly also lead to larger import duties, impair the subsidiary’s competitive position (resulting from larger input rates), worsen the rate of inflation, raise the subsidiary’s capital fees, and also lead to retaliation by the host government to guard its balance-of-payments position. To additional complicate matters, all of those variables are altering regularly. One particular issue is clear: Superficial calculations with the effects of transfer pricing policy on person units inside a multinational program will not be acceptable.
