Theoretical contribution to intragroup transactions: Postulate of tax planning through transfer pricing

Abstract

transactions between parent companies and their subsidiaries have given rise to profit shifting to countries where taxation is more advantageous. The quest by multinationals to reduce tax burdens has become an inevitability in our era.

The purpose of this article is to analyze the various aspects related to the use of transfer pricing as a means of tax planning through a review of the theoretical literature. Several authors have focused on tax behavior of multinational companies. In 1883, Henry Sidgwick put forward a hypothesis defining transfer pricing without giving it a name, assuming that certain goods are consumed during the production process within the company. Subsequently, multinationals have quantified the price of these goods in order to value their intragroup transactions and make it a tax-planning tool. In 1961, Hoffman first defined tax planning as the ability of a taxpayer to arrange and organize his activities in such a way as to minimize his tax burden. The post-Hoffman era has seen the rise of the deliberate attempt by multinational corporations to minimize their tax liability through legal, illegal or immoral means.

The results of this review of the theoretical literature confirm that the use of transfer pricing for tax planning purposes is a reality that could be avoided by encouraging multinationals to respect the arm's length principle and encouraging States to harmonize international tax systems.

Keywords : Transfer pricing, international tax planning, intragroup transactions, profit shifting.

JEL Classification : H26, H3.

Paper type : Theoretical Research