Survey: Inconsistent tax transfer prices: tax filings, audits, and double taxation

The determination of tax transfer prices often leads to conflicts between multinational companies (MNC) and tax authorities. This problem is exacerbated by the fact that tax transfer pricing rules differ in many countries. From a MNC’s point of view, there is a risk of double taxation. Tax authorities, on the other hand, strive to prevent profit shifting to low-tax countries or even the emergence of white income (i.e. income that is not taxed in either country). However, it is not known exactly how companies deal with inconsistent tax transfer pricing regulations. Therefore, a team of researchers conducted a survey with experts to investigate how inconsistent tax transfer prices arise and what effects they have.

There is no market price for cross-border intercompany transactions. In order to be able to accurately allocate tax income and expenses to the countries involved, a substitute figure is therefore required: the tax transfer price.

There are rules that prescribe how transfer prices are to be calculated. However, the exact form is determined by national tax laws and can therefore differ between countries. The interpretation of the national standards by the respective tax authorities can lead to additional deviations. So when exactly do these deviations arise and do companies already report deviating transfer prices in their tax returns? Or does the deviation only come about as a result of a tax audit? What are the consequences and which countries are particularly affected?

Survey and sample

The survey was sent out via the Working GroupTransfer Pricing” of the German Consortium for Economic Management (Arbeitskreis „Verrechnungspreise“ der Arbeitsgemeinschaft für wirtschaftliche Verwaltung e. V., AWV) and the Taxation Committee of the German Chemical Industry Association (Steuerausschuss des Verbands der Chemischen Industrie e. V., VCI) and was answered by a total of 60 transfer pricing experts from German multinational companies. In this article, only the most important findings are mentioned. More comprehensive information can be found in the Executive Summary by Markus Diller, Johannes Lorenz and Caren Sureth-Sloane.

Deviations occasionally arise in tax returns

If the transfer pricing regulations of two countries are designed in a way that no price is considered permissible by both countries, companies would actually have to use deviating transfer prices as a basis when filing their respective tax returns. Approximately 43% of respondents indicated that they occasionally or frequently experienced this.

Divergent transfer pricing regulations are occasionally or more frequently used as a basis when filing tax returns


This seems to affect transactions between Germany and Brazil particularly frequently. However, the problem apparently also exists in the relationship between Germany and other EU countries; most frequently Italy.

Inconsistency in tax returns:
Brazil, India and China are frequently mentioned

Germany and


Deviations very often show up as a result of tax audits

In particular, deviations are expected in the context of an audit. The survey confirms this; all participants have experienced deviations as a result of an audit, 87% of them frequently or very frequently.

All participants have experienced inconsistencies as a result of an audit

Since deviations as a result of a tax audit are very common according to our survey, the participants also stated more countries in which they have made such experiences. The results show deviations systematically also between Germany and other EU countries, especially Italy.

Inconsistencies after an audit:
EU countries also often affected

Germany and


Effects of deviating transfer prices

Double taxation

From the perspective of companies, there is a particular risk that deviating transfer prices can lead to double taxation. Our survey results confirm this:  all participants have experienced double taxation.

Inconsistent transfer prices can lead to double taxation


Double taxation on the rise

According to our survey results, double taxation also appears to have increased sharply over the past five years. Participants even expect this dynamic to increase.

(Strong) increase in double taxation in the last 5 years



However, deviating transfer prices can also lead to income not being taxed in either country – in addition to profit shifting, which is still possible with consistent transfer prices. 40% of the participants reported that they have already experienced this case.

Undertaxation rarely occurs



Based on this information, the research team investigates in a theoretical model the interplay of the interests of the stakeholders involved (multinational company, tax administrations of the two countries) in order to find out what consequences deviating transfer prices have for the internal structure of the company, the production decision as well as the tax revenues of the countries involved. A preprint of this paper will be published soon here.


To cite this blog:

Sureth-Sloane, C., & Lorenz, J. (2021, March 16). Survey: Inconsistent tax transfer prices: tax filings, audits, and double taxation, TRR 266 Accounting for Transparency Blog.

More Information

The survey was carried out by Markus Diller (University of Passau), Johannes Lorenz and Caren Sureth-Sloane (both Paderborn University). The results of the sample are not representative, but fulfill their claim to map the assessment of highly qualified and specialized experts who hold corresponding decision-making positions in the companies. More than two thirds (70%) of the participants have a master’s degree (or equivalent), more than a quarter (26%) have a doctorate. 83% have been working in the field of tax transfer pricing for more than ten years.


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