According to the estimations of the World Trade Organization, sixty percent of the whole world trade is being concluded within the multinational enterprises. This can be put down to the fact that globalization has had led the enterprises separate business processes into divisions and the concept of “profit center” has gained currency in this regard. As a result of “vertical integration” between these profit centers, there is an enormous volume of exchanged goods within multinationals. This development in the practice gave rise to debates on an already existing issue, “Transfer Pricing”, however, from another dimension. The inter-company transfer of goods has gone beyond the domestic boundaries, and become an important issue in the international context. International Transfer Pricing can be assumed as an opportunity as well as a confounding factor from the perspective of multinational enterprises. On the one side, it is possible to move profits between individual divisions and create tax advantages depending on the corporate tax rates in different tax jurisdictions. On the other side, it becomes more complex for companies to track down the effects of intra-company transfers, evaluate the efficiency of the divisions and the company as a whole and make optimal decisions accordingly. At this point, some academicians propose using a multiple set of books to determine Transfer Prices. In so doing, they argue that managerial requirements can be met and optimal decisions can be reached for the good of the group as a whole.
In the light of this information, a software product named SAP® ERP® comes to attention with its unique feature in terms of determining Transfer Prices flexibly. The multiple valuation approach in this system enables the user set Transfer Prices in different valuation techniques, i.e. legal view, group view and profit center view. This study investigates the relationship between these two research objects; thus, aims to verify whether and up to which extent implementing such a system is functional and beneficial by composing Transfer Pricing and managerial requirements that come along with it.
Table of Contents
1 INTRODUCTION
1.1 MOTIVATION AND PROBLEM DESIGN
1.2 LIMITATIONS OF THE STUDY
1.3 RESEARCH METHODOLOGY AND STRUCTURE
2 THEORETICAL FRAMEWORK AND ESSENTIALS
2.1 THE TERM CONTROLLING AND ITS CONCEPTIONS
2.2 CONTROLLING TASKS AND INSTRUMENTS
2.3 CONTROLLING IN INTERNATIONAL CONTEXT
2.3.1 COMPARATIVE APPROACH - MANAGEMENT ACCOUNTING VS. CONTROLLING
2.3.2 SPECIFIC FEATURES OF CONTROLLING IN MULTINATIONAL ENTERPRISES
2.4 BASICS OF TRANSFER PRICING AND RELATED TERMS
3 TRANSFER PRICES IN THE MANAGEMENT PRACTICE
3.1 THE RELATION BETWEEN TRANSFER PRICES AND DIVISIONAL STRUCTURE
3.2 FUNCTIONS AND PURPOSES OF TRANSFER PRICES
3.3 ALTERNATIVE METHODS OF TRANSFER PRICING
3.3.1 SETTING TRANSFER PRICES FROM THE BUSINESS ADMINISTRATION PERSPECTIVE
3.3.1.1 MARKET-BASED TRANSFER PRICES
3.3.1.2 COST-BASED TRANSFER PRICES
3.3.1.2.1 MARGINAL COST TRANSFER PRICES
3.3.1.2.2 FULL COST TRANSFER PRICES
3.3.1.2.3 DUAL PRICING
3.3.1.3 NEGOTIATED TRANSFER PRICES
3.3.2 SETTING TRANSFER PRICES FROM THE TAX-REGULATING PERSPECTIVE
4 FLEXIBLE MANAGEMENT OF TRANSFER PRICES BASED UPON SAP ERP AND MULTIPLE VALUATION APPROACH
4.1 THE EFFICACY OF SAP ERP IN TRANSFER PRICING
4.2 THE SAP ERP SYSTEM
4.2.1 BASIC FACTS ABOUT SAP AND THE STANDARD SOFTWARE ERP
4.2.2 THE STRUCTURE OF SAP ERP AND RELEVANT MODULES
4.2.3 CONTROLLING IN SAP ERP
4.2.3.1 CONTROLLING ENTERPRISE STRUCTURE
4.2.3.2 CUSTOMIZING CONTROLLING ORGANIZATION
4.3 DESIGNING TRANSFER PRICES AND MULTIPLE VALUATION APPROACH IN SAP ERP
4.3.1 CONFIGURING MULTIPLE VALUATIONS
4.3.2 CONFIGURING PROFIT CENTER ACCOUNTING
4.4 ECONOMIC VIABILITY OF SAP ERP IMPLEMENTATION
5 CONCLUSION
Objectives and Research Themes
This study investigates the strategic implementation of SAP ERP to manage transfer prices in multinational enterprises, specifically examining how a multiple valuation approach can reconcile conflicting managerial, financial, and tax requirements. The research explores the necessity and functional benefits of using SAP ERP to support flexible, multi-perspective transfer pricing, ultimately determining if such a system provides a practical solution to the complexities of international controlling.
- The impact of globalization and divisional structures on transfer pricing in multinational enterprises.
- The identification of primary and secondary functions of transfer pricing within management practice.
- The comparative analysis of different transfer pricing methods, including market-based, cost-based, and negotiated approaches.
- The technical capabilities of SAP ERP, focusing on its integration of FI, CO, and MM modules for multi-perspective valuation.
- The configuration and economic viability of implementing SAP ERP for transfer pricing scenarios.
Excerpt from the Book
3.1 THE RELATION BETWEEN TRANSFER PRICES AND DIVISIONAL STRUCTURE
Transfer Pricing involves setting appropriate selling prices for goods or services when both buyer and seller are within the same company. For that reason, transfer pricing decisions typically arise within multi-divisional organizations. This explanation highlighted by Albright et al. reveals, first of all, the exigency of describing as to which characteristics these divisions vary from each other. A multi-divisional or multi-functional enterprise combines different activities by type, such as manufacturing, marketing, or finance. As a result of this, each division assumes different responsibilities and each divisional manager is held accountable for the delegated authority.
Responsibilities can be defined in the sense of quantities of inputs consumed, actual quantity of output generated, specific features of the production or service process (e.g., quality standards, customer satisfaction, delivery schedule), or financial indicators of performance in these areas. With this in mind, it is logically required to distinguish and objectify these five various corporate divisions, i.e., Financial Responsibility Centers, which are characterized by the extent of the responsibilities they assume.
Summary of Chapters
1 INTRODUCTION: This chapter outlines the motivation for the research, defines the scope and limitations, and details the research methodology used to investigate transfer pricing and SAP ERP.
2 THEORETICAL FRAMEWORK AND ESSENTIALS: This chapter provides a conceptual foundation for controlling, exploring various definitions and instruments, while establishing the theoretical basis for international transfer pricing.
3 TRANSFER PRICES IN THE MANAGEMENT PRACTICE: This chapter analyzes how transfer prices function within the divisional structure of multinational enterprises, detailing different methods of setting prices from business and tax perspectives.
4 FLEXIBLE MANAGEMENT OF TRANSFER PRICES BASED UPON SAP ERP AND MULTIPLE VALUATION APPROACH: This chapter serves as the focal point, detailing the SAP ERP system's architecture and its application in configuring multiple valuation methods for transfer pricing.
5 CONCLUSION: This chapter summarizes the study's findings, evaluating the functional utility of SAP ERP for transfer pricing and assessing the economic implications of such an implementation.
Keywords
Transfer Pricing, SAP ERP, International Controlling, Multiple Valuation Approach, Multinational Enterprises, Profit Center, Financial Responsibility Centers, Divisional Structure, Management Accounting, Cost-based Transfer Pricing, Market-based Transfer Pricing, Goal Congruence, SAP Modules, Economic Viability, ERP Implementation.
Frequently Asked Questions
What is the core focus of this research?
The research examines the relationship between transfer pricing policies and the SAP ERP software, specifically evaluating how the system can flexibly manage internal transactions within multinational enterprises.
What are the central thematic areas?
The study centers on three main themes: the theoretical role of transfer pricing in international controlling, the managerial necessity of diverse pricing methods, and the technical configuration of SAP ERP to support these requirements.
What is the primary research objective?
The objective is to verify whether implementing the multiple valuation approach in SAP ERP is functional and beneficial for meeting complex managerial and tax-related demands in global business.
Which scientific method is utilized?
The study employs a qualitative, analytical approach, relying on conceptual data and existing literature to provide a critical evaluation of transfer pricing practices within the SAP framework.
What is covered in the main body of the work?
The main body details the definitions and functions of transfer prices, the classification of divisional structures, and provides a step-by-step examination of the SAP modules and configuration settings required for multiple valuations.
Which keywords characterize this thesis?
The work is characterized by terms such as Transfer Pricing, SAP ERP, International Controlling, Multiple Valuation Approach, and Profit Center Accounting.
What role do "two sets of books" play in this study?
The study discusses the concept of using "two sets of books" (managerial and tax perspectives) to manage the conflicts between profit shifting and divisional performance evaluation, noting how SAP ERP facilitates this separation.
Why is the Profit Center view significant in SAP ERP?
The Profit Center view is crucial as it allows internal profitability management and performance evaluation of divisions using internal rates, independent of external market constraints.
- Quote paper
- Cenk Yildirim (Author), 2014, Flexible Management of Transfer Prices and Multiple Valuation Approach Based upon SAP ERP within the Context of International Controlling, Munich, GRIN Verlag, https://www.grin.com/document/310976
