29.1 INTRODUCTION. A multinational enterprise by its inherent nature has facil-
ities of many types located in many locations in the world. Transfer pricing is a field
of analysis that reflects the determination of profits of each such portion of the en-
terprise. The profits of each portion of the business are most typically structured
through intercompany transactions, including intercompany sales, licensing, leasing,
and the like. Transfer pricing is a field of analysis that reflects the price of goods,
services, or intangible transfer between these entities, or, as an alternative, the deter-
mination of profits of entity for that activity having taken place within the enterprise.
(a) Transfer Pricing as a Decision-Making Process. Transfer pricing for an enterprise
is a complex decision-making process. The process itself reflects many inputs and re-
flects many constituencies of the enterprise. The inputs typically include diverse ac-
tivities, including the cost of construction, marketing efforts, taxation, market share
goals, and many other inputs of this type including human behavior specialists, in-
ternational tax practitioners, industrial engineers, and economists and many others.
The constituencies typically include shareholders, employees, and customers.
The decision-making process typically involves inputs from various segments of
the business. The transfer pricing decision is viewed differently by persons who can
see one segment of the entire picture. It is rare that a person can see the entire pic-
ture and act on that picture.
(b) Tax and Nontax Considerations. Some outsiders to a business view the business
as making unilateral decisions, viewing the executives as having no goal than maxi-
mizing short-term profitability of the worldwide business determined on an after-tax
basis. These outsiders neglect to consider that businesses often use pricing structures
designed to compete with outside interests, compete with executives in terms of ex-
ecutive compensation, and deal with long-term interest of suppliers. What makes the
field of transfer pricing interesting is that the revenue authorities in many jurisdic-
tions are such outsiders described above.
A business can view transfer pricing as a zero-sum analysis except for executive
compensation and taxation, as profits would be the same regardless of the legal en-
tity of physical location where the profits occur. Some businesses view the zero-sum
features of transfer pricing as an excuse to avoid top level transfer pricing adjust-
ments. Other businesses split transfer pricing issues among transfer pricing tax exec-
utives and executive personnel.
(c) Ascertaining Who Is at Risk. Transfer pricing decisions most typically take place
among executives located in and representing affiliates in an enterprise or their own
interest. This pricing decision affects the profitability of each legal entity within the
29.1 INTRODUCTION 29 • 3(vii) Dollar Revenues and
Geographic Market
Information 37
(viii) Previous Acquisitions 37
29.22 Proposed Second Standard
Transfer Pricing Information
Document Request 38
(a) Classification 38
(b) Consistency 38
(c) Applicability 38
(d) Information Rrequested 38
(e) U.S.-Connected Products
or Services 38
(f) Gross Revenues 39
(g) Operating Income 39
(h) Operating Expenses 39
(i) General Information 39
(j) NAICS Reporting 40
(k) U.S.-Connected Products
or Services 40