A SURVEY OF TRANSFER PRICING PRACTICES IN MANUFACTURING SECTOR OF PAKISTAN

AHMAD USMAN BS.Commerce (2007-11) BCM-07-16

WHAT IS TRANSFER PRICING?

LEVELS OF TRANSFER PRICING

High volumes of interdivisional sales High volumes of segment-specific sales

High degree of organizational decentralization

TRANSFER PRICING OBJECTIVES

Domestic

transfer pricing objectives transfer pricing objectives

International

TRANSFER PRICING METHODS

Market based
Full cost based Variable cost-based Negotiated price

OECD (1995) IDENTIFIED THE FOLLOWING THREE TRANSACTION BASED METHODS

Comparable uncontrolled price (cup)

Resale price method (rpm) Cost-plus method

RECORD OF RELATED PARTY TRANSACTION

Name of related party

Nature of relationship with related party Nature of transaction Amount of transaction Terms and conditions of transaction, including the amount of consideration received or given.

IAS-24: INFORMATION RELATED PARTY DISCLOSURES

This Standard applies to:

Identification of relationships and transactions between related parties

Identifying outstanding balances between an entity

and its related parties Identification of circumstances that requires

disclosure about (a) and (b) above, and

The determination to disclose information on these headings.

RESEARCH QUESTIONS

To examine the most dominant transfer pricing

methods

used

by

Pakistans

manufacturing

companies.

To determine the most important organizational objectives for transfer pricing methods.

To investigate if the size factor influences a

companys transfer pricing method choice.

RESEARCH QUESTIONS

To investigate if the degree of decentralization factor influences a companys transfer pricing method choice.

To investigate if the degree of diversification factor influences a companys transfer pricing method choice.

To investigate if the size of transfers factor

influences a companys transfer pricing method choice.

RESEARCH METHODOLOGY

Independent variables:

Company size. Degree of decentralization. Degree of diversification. Size of transfers

Dependent variables

Choice of transfer pricing methods

HYPOTHESIS

There is no relationship between the size of the

company and the choice of a transfer pricing method.

There is no relationship between the degree of decentralization and the choice of a transfer pricing

method.

There is no relationship between the degree of diversification and the choice of a transfer pricing

method.

There is no relationship between the size of transfers and the choice of a transfer pricing method.

RESULT AND DISCUSSSOINS

14%
2%

19%

Market based

Full cost based

Variable cost based 16% 26%

Comparable uncontrolled price Resale price method Cost plus method

23%

STATISTICAL TEST OF SIZE OF THE COMPANY

SIZE OF THE COMPANY

Chi square 0.597

Df 5

Significance 0.161

The significance level is greater than 0.05, which indicates that there is no relationship between transfer pricing method and size of the company

STATISTICAL TEST OF DIVERSIFICATION OF THE COMPANY

Diversification Df 5

Chi square 0.506

Significance 0.169

The significance level is greater than 0.05, which indicates that there is no relationship between transfer

pricing method and diversification.

STATISTICAL TEST OF DECENTRALIZATION OF THE COMPANY

Chi square 0.441

Decentralization D.f 5

Significance 0.383

The significance level is greater than 0.05, which indicates that there is no relationship between

transfer pricing method decentralization.

STATISTICAL TEST OF SIZE OF TRANSFER OF THE COMPANY

Size of transfer Df 5

Chi square 0.543

Significance 0.069

The significance level is greater than 0.05, which indicates that there is no relationship between transfer pricing method and size of transfer.

CONCLUSION