Application of Transfer Pricing as a Strategic Tool by Multinational Corporations in Kenya
Abstract
Transfer pricing has been viewed for many years as a compliance issue whereby MNCs
are legally required to prepare, document and file with tax revenue authorities.
Additionally, most authors have written on economics, accounting, taxation and
finance aspect of transfer pricing. Notable among them are Eccles (1985) and
Hirshleifer (1985). However, of late, transfer pricing has been viewed as a strategic tool
that can enable MNCs to gain competitive advantage. Additionally, there is little
literature on transfer pricing and strategy. The objective of the study was to find out
how MNCs operating in Kenya were applying transfer pricing as a strategic tool. The
study adopted descriptive research design which enabled to describe characteristics
associated with the subject population. It was found out that transfer pricing was
applied to achieve internal objectives such as motivating subsidiary managers,
monitoring performance of foreign subsidiaries and as a means of achieving goal
harmonization between subsidiary managers and parent companies. External objectives
included application of transfer pricing as a means of minimizing taxes and duties, as a
means of controlling foreign exchange risks, as a cash management tool and as a means
of avoidance of foreign government interference. It was revealed that in contrast to a
purely finance, economics and tax driven mechanism, transfer pricing can be
considered as a tool for advancing MNCs strategies in Kenya. Results indicated that
executives were not solely focused on compliance, finance, economics and taxation
issues as primary objectives of transfer pricing. It was recommended that future
researchers should focus on examining various ways of managing transfer pricing risks
and challenges especially in emerging markets.
Citation
Master Of Business Administration, University Of Nairobi , 2013Publisher
University of Nairobi, School of Business