Transfer Pricing: The Strategic Value of Transnational Location

Say you're a multinational with operations spread around various countries. You need to know where you can perform your operations most economically and efficiently, and you also need to factor the corporation tax you pay in different countries.

Here's how you might identify which locations are most profitable for which activities: you run a centre of gravity analysis, first off. This shows you which country you would be best off operating which functions inside. Factors will be internal and external this stage, i.e. logistics and labour. Then you run a corporate tax comparison of the various countries. You compare these for fit with the centre of gravity. You might accept a higher tax location for the internal efficiencies it offers. You do the trade-offs. You wouldn't have to do the mathematics at the granular level, if you didn't want to (of course, you would if you were moving billions). You would know which countries represent roughly the best economies. A simpler way would be to just factor in a corporate tax weighting for each country option in the centre of gravity analysis. I should get this into a book . I've read everything in English on transfer pricing (in my days at KPMG) , but there's no method quite as simple as what I'm proposing here. Not to my knowledge.

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