Introduction

Transfer pricing is a concept that is very much existent in this modern world. It refers to the total value that is attached to the prices of goods and services between related parties.  It is the total price that is charged in a transaction. It has many positive aspects as it helps the companies in avoiding double taxation and relieves them of the unnecessary tax burden. But in the process of doing so, it has often led to the unlawful use of the law, by companies to curb the genuine payment of taxes, that they were to pay. In this modern era and globalized situation, this concept of transfer pricing holds utmost importance given that the companies indulge in cross trading and consumers are attracted towards policies that help them in payment of fewer taxes. In this assignment, the dark side of transfer pricing will be discussed as stated by the authors (Sikka & Willmott, 2010). It emphasizes the importance of cost allocation between the nations and how cross-country trade is being affected by the modern means of tax cutting that is covered under the veil of lawful tax avoidance. This forms the core of this article and throws lights on the different aspects of transfer pricing that includes the darker side which is not very popular in terms of disclosure.

Analysis

1. The core argument of this article that the authors want to present is that the concept of transfer pricing is always taken in good light, considering that it makes it easier for the companies to indulge in cross country trade and avoids the pressure of double taxation, but there is a darker side to the same. This is very apparent from the way companies are making use of the law to avoid taxation and the pressure is then given on the consumers indirectly, who end up paying more prices for goods because of the complex taxation policy (Burke & Clark, 2016). This article highlights certain incidences where it can be clearly seen how companies are making use of this policy to avoid paying taxes. For examples, countries like China and Russia, that enjoys huge international trade owing to their great products at cheaper prices, make use of this transfer pricing policy to sell products to the international trader at lower prices, that causes these countries huge loss of revenues in the form of taxes. As per reports the Chinese exports are underpriced and the imports are overpriced, this is causing huge loss of revenue. Even in Russia, where there is no strict guidance and rules and in absence of direct foreign investments, the government must resort to other methods like subsidies and no taxation zone, to promote trade and to recover from the losses that occur because of the taxation policy that governs international trade. Not just developing countries, even developed nations are getting affected because of these policies, countries like the USA are also losing on revenue (Crosby & Henneberry, 2016). Transfer pricing not only refers to the transaction of goods and services but also refers to the transfer of wealth that occurs between nations when they indulge in international trade. The aim of every nation is to improve its economic condition by developing its GDP and for the same they try to indulge in such activities as activities as per which they end up paying less or no amount of taxes. But this in turns affects the profitability of other countries, as they lose on taxes, that it there primary source of revenue (Dichev, 2017). On the forefront, it may look that the transfer pricing policy is helping the countries in avoiding double taxation, but it is also helping the companies in tax avoidance as they transfer all their transactions to such area in which they do not have to pay any taxes. Tax havens are an aspect of transfer pricing schemes, where certain areas are such that where the companies do not need to pay any taxes if they have transactions in that zones. Many companies try to make use of the same and try not to pay taxes (Han, Subrahmanyam, & Zhou, 2017). The prevalence of such schemes is very difficult to be judged as they are very carefully and tactfully hidden and accessed only when there are some major fallouts, or whistleblowing.  It also leads to compliance issues in many multinational corporations, and the same effects the overall operations of the companies. It also affects the cross-country trading and international mergers that occurs with a viewpoint to provide better services and resources to the public. Thus, we see that not just in promoting international trade, the concept of transfer pricing also plays an important role in promoting the incidences of tax avoidances. Many companies try to avail the same, make misappropriate use of it and this leads to loss of revenue. Because of the same many countries do not encourage international trade, and the end users are the most affected party in the whole scene (Sikka & Willmott, 2010).

2. This article, in general, reflects the conventional techniques of management accounting, that cover different methods like decision making, future-focused, timeliness. In this article, the authors have provided a brief view on how the various aspects of transfer pricing are affecting the overall cost and revenues that the companies are earning owing to the aspects of the tax havens that are prevalent in case of transfer pricing concepts (Fay & Negangard, 2017). Transfer pricing is a method that helps in determining the overall cost that the countries pay in case of international and cross-border transaction lieu of the goods and services that they exchange. This helps in generating more revenue, thus helps in effective cost management which is an important aspect of the conventional management accounting. This article also reflects how companies are taking decisions on having transactions and shifting all their operations to tax-free zone, so they end up paying less amount of taxes (Abbott & Kantor, 2017). This is an aspect of decision making that reflects the conventional method of management accounting. This article also focuses on the future focused aspect of the transfer pricing policies, where companies tend to go for such deals, in which they will have to pay no taxes in times to come. And, the future aspect is there in the fact that so many companies have to lose on their profits and have to lower their rates, and the government is also losing so many amounts of income owing to these transfer pricing policies and how the same will affect the times to come (Alexander, 2016).

This is different from what is provided in the textbook because in the textbook the focus is more on the contemporary aspects of management accounting which focuses on performance evaluation and management. Performance management covers the aspect of modern management method, that includes, communication of business strategy, tracking the performance, evaluating the rewards and recognition and the overall guide for the future development of the company. The measures are very simple and are mostly controlled with the help of system software and tools. This is an important aspect of the contemporary method of management accounting that includes, use of balanced scorecards, use of performance trackers, inventory regulators (Chiapello, 2017). It makes the work easy and more accurate and there is less human intervention in this. This is how the contemporary method of management functions. But the same is not applied in this article of transfer pricing and focuses mainly on the conventional method of accounting. There is no use of modern methods of performance trackers that can help in regulating the overall work done by the companies in dealing with tax avoidance and reduction of the overall revenues for the countries (Prasad & Chand, 2017).

The major characteristics of effective performance measurement control include emphasizing the overall positives, it must be reported in a timely manner, there must be proper benchmarking and it must be limited to the performance measure. All this is not present in this article on transfer pricing that reflects the dark scenario of the countries and the international trade under the realms of transfer pricing and its policies (Maynard, 2017). This is how this system works and same has been explained in this article, covering the different aspects on how the countries are suffering owing to the decision-making capabilities of the nations on declaring regions as tax haven and no proper scrutiny being done later to find how the companies are taking undue advantage of the same (Guragai, Hunt, Neri, & Taylor, 2017). The bigger picture appears all rosy, but the darker side is still prevalent which is not there in open and requires a lot scrutiny to be assessed. This is how the conventional and the contemporary methods of management accounting are different from each other in terms of the overall performance management and the same is reflected in the article stated above.

Conclusion

Based on the above analysis it can be said that there must be a more simplified way by which governments can track the overall performance of these companies that are indulging in international trade and the overall effect that it is having on the revenue of the countries in question. The outer picture might appear rosy but there is a dark side to it and it is the need of the hour that same must be brought out in open and the end user should not be affected because of the same. The conventional and the contemporary methods of performance management must go hand in hand and should reflect the true position by using the modern tools in synchronization with the techniques of the contemporary method of management accounting (Chariri, 2017). In this way, the companies will not be able to take undue advantage of the laws and by-laws on transfer pricing and correct revenue will be reflected. This is the long run will help in promoting international trade and help in curbing tax evasion. Strict punishments must be there for companies that are found defaulting in this zone and a proper performance tracker must be developed to look at the companies that function in this respect. This is how the concept of performance management can be synced with this aspect of transfer pricing (Sweeting, 2017). Experts must be appointed to look over the minute details under the broad picture of transfer pricing and how changes can be initiated that will discourage the companies from indulging in any form of tax avoidance.   

References

Abbott, M., & Kantor, A. (2017). Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation. Australian accounting Review.

Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.

Burke, J., & Clark, C. (2016). The business case for integrated reporting: Insights from leading practitioners, regulators, and academics. Business Horizons, 59(3), 273-283.

Chariri, A. (2017). FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).

Chiapello, E. (2017). Critical accounting research and neoliberalism. Critical Perspectives on Accounting, 43, 47-64.

Crosby, N., & Henneberry, J. (2016). Financialisation, the valuation of investment property and the urban built environment in the UK. Urban Studies, 53(7).

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Guragai, B., Hunt, N., Neri, M., & Taylor, E. (2017). Accounting Information Systems and Ethics Research: Review, Synthesis, and the Future. Journal of Information Systems: Summer 2017, 31(2), 65-81.

Han, B., Subrahmanyam, A., & Zhou, Y. (2017). The term structure of credit spreads, firm fundamentals, and expected stock returns. Journal of Financial Economics, 24(1), 147-171.

Maynard, J. (2017). Financial accounting reporting and analysis (second ed.). United Kingdom: Oxford University Press.

Prasad, P., & Chand, P. (2017). The Changing Face of the Auditor's Report: Implications for Suppliers and Users of Financial Statements. Australian Accounting Review.

Sikka, P., & Willmott, H. (2010). The dark side of transfer pricing: Its role in tax avoidance and wealth. Critical Perspectives on Accounting, 342-356.

Sweeting, P. (2017). Financial Enterprise Risk Management (Second ed.). UK: Cambridge University Press.

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