WMU News

Accounting expert publishes text on transfer pricing

Sept. 2, 1997

KALAMAZOO -- The accounting and tax challenges faced by multinational corporations when goods are transferred between parts of the corporation operating in different countries is the topic of a new book by an internationally known transfer pricing expert.

Dr. Roger Y.W. Tang, Western Michigan University professor of accountancy and holder of the Upjohn Chair of Business Administration, is the author of "Intrafirm Trade and Global Transfer Pricing Regulations." The 288-page book was published this summer by Quorum Books of Westport, Conn.

Intrafirm trade includes any transaction of tangible or non-tangible goods and services between different parts of a multinational firm, Tang says. Transfer pricing is concerned with the price assigned to those goods or services. The term "intrafirm trade" can be used to describe transfers within departments of a company or transactions between such firms as the Ford Motor Co. and its foreign subsidiaries, including Ford (Canada), Jaguar Cars Limited in Britain and the Hertz Corp., which operates around the world.

Tang's book includes the latest information on recent regulations enacted by the United States and many of its major trading partners, including Canada. The book, Tang says, was triggered by the fact that many countries recently revamped old regulations and have adopted additional new rules to govern intrafirm trading. Such changes have provided some badly needed stability for corporations, but the penalties for not complying with new regulations can be very high.

"The financial stake is huge," Tang says. "Intrafirm trade makes up about 40 percent of U.S. trade and 20 percent of foreign trade -- that's more than $500 billion of U.S. trade and close to $2 trillion in world trade in 1996 which is subject to transfer pricing regulations in various countries."

Tang notes that the Internal Revenue Service employs more than 700 tax examiners who do nothing but check the tax returns of international firms. Besides attracting the interest of tax authorities, the complex problems involved have captured the attention of financial executives and academicians.

As a matter of fact, Tang says, a 1995 survey of top executives at multinational firms in eight industrial nations revealed that 82 percent of those who responded called transfer pricing the most important international tax issue facing multinationals. Additionally, 71 percent of those responding said they expected it to remain a critical issue for the near future.

Tang, who has spent 20 years conducting research on the topics of intrafirm trade and transfer pricing, completed the book after spending 1996 on sabbatical leave as a visiting scholar at Hong Kong Baptist University's Business School. While there he also visited multinational corporations in such locations as Shanghai.

Tang's book focuses on recent developments involving transfer pricing in the United States; major intrafirm trade and transfer pricing issues in Canada and Mexico, the United States' two partners in the North American Free Trade Agreement; transfer price regulation in selected countries in the European Union; and developments in four selected countries in the Asian Pacific region.

The book also details major reports and guidelines developed by the Organization for Economic Cooperation and Development. That international organization was founded in 1960 and is devoted to fostering world trade and economic development. It plays a leadership role in promoting uniformity and consistency in regulation to avoid double taxation and achieve an equitable system of international taxation.

Tang's book is available from the publisher for $75.

Tang, a faculty member at WMU since 1988, also has taught at the University of Calgary, McGill University and the University of Nebraska at Lincoln. He is the author of three previous books on transfer pricing as well as numerous professional journal articles. Tang earned a bachelor's degree from the National Taiwan University, a master's degree from Eastern New Mexico University and a doctoral degree from the University of Nebraska at Lincoln.

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