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A general unconstrained model for transfer pricing in multinational supply chains

A general unconstrained model for transfer pricing in multinational supply chains,10.1016/j.ejor.2006.04.048,European Journal of Operational Research,

A general unconstrained model for transfer pricing in multinational supply chains   (Citations: 3)
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Multinational supply chains operate in more than one country or tax jurisdiction and face decision problems concerned with trade flows of resources, products and services, transfer prices, and allocation of transport costs between their divisions. These decisions must consider, for the sake of optimality, corporate and governmental parameters such as the payment of dividends and royalties, ownership of and control over subsidiaries, income taxes differentials, duties and quotas, etc. In this paper, we generalize and extend the Theory of the Multinational Firm to the case of multinational supply chains. We propose a model that is more general and comprehensive than the previous ones proposed in the literature. To be more specific, our model integrates many of the previous research factors and includes new ones, such as transport costs and duty drawbacks, which are critical for supply chains that operate under international trade regulations. Under the maximization of the repatriated earnings objective, we study the optimality conditions of the corporate decision variables to derive managerial guidelines and to determine how decisions regarding trade quantities, transfer prices, and transport cost allocations affect the amount of taxes to be paid to host governments as well as the total after tax repatriated earnings of the corporation.
Journal: European Journal of Operational Research - EJOR , vol. 187, no. 3, pp. 829-856, 2008
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    • ...Recently, an interesting descriptive unconstrained model for transfer pricing in multinational supply chains has been proposed, which takes into account many factors (Villegas and Ouenniche, 2008)...
    • ...However, the authors have not provided any specific solution procedure to the model as “such a procedure would require specific assumptions about the cost and the revenue functions taken into account in the paper” (Villegas and Ouenniche, 2008, p. 846)...

    Svetlana Zverovich. The Transfer Pricing Problem with NonLinearities

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