Multinational enterprises (MNEs) ordinarily operate in a vertically integrated manner, but each ‘profit centre’ optimises its own profits. Transfer pricing (“TP”) policy is at the heart of this phenomenon as it determines how MNEs’ profits should be optimised in such a decentralised structure. Transaction cost economics stresses that local information specialisation causes information asymmetries in MNEs, and it is costly for the management of MNEs to obtain all necessary local information. With the implementation of the OECD-based TP regime in Hong Kong, MNEs need to step up their efforts in collecting local information to meet the disclosure requirement. This paper discusses the relationship between the valuable information embodied in MNEs and their strategic TP policies. It also examines the relationship between the information embodied in multifaceted global firms and their cross-jurisdictional transactions.
Source: https://www.tihk.org.hk