NDLI: Impact of taxation on international transfer pricing and offshoring decisions

Content Provider	Springer Nature Link
Author	Wang, Ziping Gao, Wenlian Mukhopadhyay, Samar K.
Copyright Year	2013
Abstract	A multinational company may move production to a foreign country to take advantage of low manufacturing cost, and/or experience tax savings. Transfer prices play an important and strategic role on income shifting by multinational companies. In this paper, we construct a framework for optimal decision making in global supply chains with uncertain and price-dependent demand, propose methods to improve global supply chain parties’ performance, and explore schemes to integrate global supply chains. The optimal pricing and offshoring decisions are investigated for different situations where the low foreign production cost and low foreign tax rate exist or only one of them is available. The case of low foreign tax rate without the advantage of low foreign production cost provides the most interesting findings that partial offshoring dominates when a certain threshold is met. In addition, the double marginalization is examined in decentralized global supply chains similar to the mechanism in newsvendor problems. Due to the existence of the tax jurisdiction, the double marginalization cannot be completely eliminated by coordinating schemes. Finally, the traditional buy back contract is found to be unable to coordinate global supply chains, while a modified sales sharing contract can improve the performance of the global supply chain.
Starting Page	683
Ending Page	707
Page Count	25
File Format	PDF
ISSN	02545330
Journal	Annals of Operations Research
Volume Number	240
Issue Number	2
e-ISSN	15729338
Language	English
Publisher	Springer US
Publisher Date	2013-11-08
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Transfer price Offshoring Tax savings Global supply chain integration Operation Research/Decision Theory Combinatorics Theory of Computation
Content Type	Text
Resource Type	Article
Subject	Management Science and Operations Research

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