Title: Optimal negotiated transfer pricing and its implications for international transfer pricing of intangibles

Authors: Peter C. Dawson; Stephen M. Miller

Addresses: P.O. Box 612831, Dallas, 75261-2831, Texas, USA. ' College of Business, University of Nevada, Las Vegas, 4505 Maryland Parkway, Las Vegas, 89154-6005, Nevada, USA

Abstract: Intangibles exhibit zero marginal licensing cost, including cross-border intra-firm licensing of intangibles within a multinational corporation (MNC). An MNC may not realise the full profit potential of licensing intangibles intra-firm, however, under suboptimal negotiated transfer pricing schemes. Our negotiated transfer pricing bargaining structure unlocks this potential by producing an optimal transfer price and larger optimal intra-firm licensed quantity. Increased licensing of intangibles intra-firm across borders produces a greater potential tax savings/consolidated after-tax profit gain per unit of transfer price adjustment, creating a context where MNCs feel a greater imperative or incentive to move beyond legal tax avoidance toward evasion.

Keywords: negotiated transfer pricing; NTP; licensing intangibles; arm|s length royalty; decentralised decision making; multinational corporations; MNCs; international trade; intra-firm trade; tax avoidance; tax evasion; bargaining structure; marginal licensing cost; intra-firm licensing; cross-border licensing; international transfer pricing; optimal transfer prices.

DOI: 10.1504/IJIPM.2011.043874

International Journal of Intellectual Property Management, 2011 Vol.4 No.4, pp.239 - 269

Received: 10 Sep 2011
Accepted: 25 Oct 2011

Published online: 31 Oct 2014 *

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