International transfer pricing practices : a New Zealand perspective

Abstract

International Transfer Pricing (ITP) is a major managerial concern for multinationalcompanies. This paper identifies the ITP methods used and the importance of environmental factors affecting the choice of methods by seventy seven foreign owned New Zealand companies. The results of this study point to a possible divergence between theory and practice with respect to the use of international transfer prices. Literature suggests that full cost methods are not theoretically defensible, and should not be used in practice (Borkoski, 1990). This study provides evidence that thirty (48.7%) of the respondent firms used severaltypes of full cost methods. This research supports the contingency theory approach tomanagement control systems such as ITP in which firms choose a best-fit method for their particular situations, rather than based on 'theory'.