Joint transfer pricing decision on tangible and intangible assets for multinational firms
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866911248638017536 |
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| author | Kang, Yaling Ma, Zujun Tian, Xin Wu, Zhiqiao |
| author_facet | Kang, Yaling Ma, Zujun Tian, Xin Wu, Zhiqiao |
| contents | While conventional multinational firms (MNFs) often avoid taxes by transferring their profits to low-tax regions through markup on tangible asset costs, high-tech MNFs may avoid taxes by transferring royalty fees to intangible assets (i.e., royalty-based transfer prices). This study investigates the effects of tax differences, markups, and royalties on decision-making. We also compare the different effects of markups and royalties on the improvement of MNFs' after-tax profit under two main business structures: the commissionaire operational structure (C) with complete information, and the limited-risk operational structure (R) in the principal-agent setting. We find that the tax difference always improves MNFs' profits under the C structure, whereas non-monotonic behavior exists under the R structure. More interestingly, when the order quantity is relatively small, the markup improves MNFs' profits faster than the royalty; conversely, the royalty improves MNFs' profits faster than the markup. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2511_02658 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Joint transfer pricing decision on tangible and intangible assets for multinational firms Kang, Yaling Ma, Zujun Tian, Xin Wu, Zhiqiao Numerical Analysis While conventional multinational firms (MNFs) often avoid taxes by transferring their profits to low-tax regions through markup on tangible asset costs, high-tech MNFs may avoid taxes by transferring royalty fees to intangible assets (i.e., royalty-based transfer prices). This study investigates the effects of tax differences, markups, and royalties on decision-making. We also compare the different effects of markups and royalties on the improvement of MNFs' after-tax profit under two main business structures: the commissionaire operational structure (C) with complete information, and the limited-risk operational structure (R) in the principal-agent setting. We find that the tax difference always improves MNFs' profits under the C structure, whereas non-monotonic behavior exists under the R structure. More interestingly, when the order quantity is relatively small, the markup improves MNFs' profits faster than the royalty; conversely, the royalty improves MNFs' profits faster than the markup. |
| title | Joint transfer pricing decision on tangible and intangible assets for multinational firms |
| topic | Numerical Analysis |
| url | https://arxiv.org/abs/2511.02658 |