An empirical investigation of the ability of multinational enterprises to affect their United States income tax liability

Transfer prices are the prices charged by one party for goods and/or services transferred to a related party. While transfer prices are essential to the goal of profit maximization within the enterprise, difficulties arise over how to establish the âcorrectâ transfer price. For the global enterprise this problem is more acute because different segments of the enterprise operate under different political jurisdictions and are subject to taxation by different political entities. Concerns have been raised by Congress and the Internal Revenue Service regarding whether multinationals, especially foreign-owned multinationals, are using transfer pricing and cost-allocation policies across international borders to avoid United States income taxes. Generally, testimony before the hearings, limited anecdotal studies, and court case findings have suggested that multinationals do not pay their "fair shareâ.