The use of information technology for international transfer pricing in multinational enterprises

Abstract

This paper studies the degree to which multinational enterprises (MNEs) use information technology (IT) for automating international transfer pricing (ITP). Based on 21 interviews conducted with in-house accounting and tax professionals in MNEs, we find a limited use of IT for automating transfer price setting as well as documenting compliance with the arm's length principle. That said, some degree of automation is observed in regards to the intra-organizational workflow management of producing documentation files. The overall low level of IT automation observed is grounded in both system-level arguments, e.g. fragmented accounting information system (AIS) environments, as well as in-house functional hierarchies. Specifically, management accountants and IT functions are found to dominate the AIS design agenda, while the tax function's goals of transfer pricing tax compliance plays a relatively marginal role. We argue that while MNE tax functions have gained increasing attention among MNE top executives in the wake of BEPS, management accountants and IT experts continue to play a superior role in the design of internal accounting and reporting systems. Ultimately, this limits the tax function's ability to fully automate the transfer pricing process, partially because the accounting and system configurations prioritized by management accountants and IT staff often conflict with those system designs preferred for managing transfer pricing tax risks.