Effect of Environmental Factors on the Choice of Transfer Pricing Policies: An Analysis of a Few Indian Multinational Corporations

Abstract

The global trade market is unstable and unpredictable due to shifting environmental circumstances. The variables determining transfer pricing policies will change over time and in relation to different geographic locations. A single universally applicable TP does not exist, as host nation governments would be efficient in organising defences. The study includes environmental variables in order to assess the influence and trends of the same in the choice of Transfer Pricing policies employed by MNCs. Eighteen environmental variables were selected for data collection, and respondents rated the significance of each of the factors on a five-point scale. This study reveals the different environmental factors that impact businesses as they work towards generating value and conforming to the tax laws. The finding of this study demonstrates that the key drive for MNCs transfer pricing policies is the fear of violating tax regulations, which often leads to other objectives being overlooked when they clash with this primary objective of tax minimisation and profit maximisation.

Keywords: Transfer Pricing, Environment Factors, International Tax Laws, Regulatory Authorities, Tax Minimisation, Overall Profitability

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