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arXiv · 2511.02658

Joint transfer pricing decision on tangible and intangible assets for multinational firms

Yaling Kang·Zujun Ma·Xin Tian·Zhiqiao Wu
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Abstract

While conventional multinational firms (MNFs) often avoid taxes by transferring their profits to low-tax regions through markup on tangible asset costs, high-tech MNFs may avoid taxes by transferring royalty fees to intangible assets (i.e., royalty-based transfer prices). This study investigates the effects of tax differences, markups, and royalties on decision-making. We also compare the different effects of markups and royalties on the improvement of MNFs' after-tax profit under two main business structures: the commissionaire operational structure (C) with complete information, and the limited-risk operational structure (R) in the principal-agent setting. We find that the tax difference always improves MNFs' profits under the C structure, whereas non-monotonic behavior exists under the R structure. More interestingly, when the order quantity is relatively small, the markup improves MNFs' profits faster than the royalty; conversely, the royalty improves MNFs' profits faster than the markup.

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Yaling Kang, Zujun Ma, Xin Tian, Zhiqiao Wu. 2025-11-04. Joint transfer pricing decision on tangible and intangible assets for multinational firms. https://arxiv.org/abs/2511.02658

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