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Opportunities and challenges faced by multi-national companies in setting an appropriate transfer price - Essay Example

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These corporations can locate activities that will best benefit them in terms of taking advantage of the opportunities in the market. Since financial matters are cardinal to the…
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Opportunities and challenges faced by multi-national companies in setting an appropriate transfer price
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Download file to see previous pages Nonetheless, MNEs enjoy substantial discretion in a way that they can structure their business operation models and set their internal trading terms (Runkel 2012). For this reason, the corporations can allocate some of the profits they have made to the member groups in low-tax areas without the need to move corresponding economic activity, risks, assets, and functions. MNEs have challenges and opportunities that face them, this paper will explore some of these.
In most cases, group members have problems facing them whenever they want to set appropriate price for intra-group transactions. Sometimes this happens even when there are no motives to set prices. MNEs are very complex in their operations (Chan 2015). Things happen to become even more intricate in the fact that good number of transactions cannot compare directly to transactions the unrelated parties have undertaken. This makes it very difficult for MNEs to comply with transfer pricing rules.
The organizational structure of MNCs is influenced by several factors. Geographical dispersion remains one of these factors (Gallemore&Labro 2014). Geographical dispersion is essentially the extent related to the cost of information flow within an enterprise and how the flow affects the corporate performance. Boundaries, indeed, may influence this flow between foreign subsidiaries and headquarters in spite of information flow being majorly done through the internet. The result, which is one of the challenges, is an increase of costs incurred in transferring the information and also valuation discount. The geographical dispersion also impacts on critical areas such as the organizational structures of the firm whereby it increases its complexity. The reason is if the headquarters is far from their business units, then it become costly to transfer information. That also limits the transfer of goods and services from the units and becomes even harder to carry out transfer pricing.
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