Transfer Pricing and Related Party Transactions: A Bibliometric Analysis

It is well known that global competition has the potential to change the way goods are produced and distributed. That is why various value-added activities of multinationals (MNEs) are scattered across countries and coordinated in order to gain competitive advantage. In order to benefit, however, it is necessary that the value-creating activities be carried out in jurisdictions that offer unique comparative advantages. That is, a good manager must identify and control the factors that influence the group performance in each of the three main stages of the value creation process, namely: supply, production, and distribution (Prasad & Sounderpandian, 2003). In order to gain a competitive edge through the global value chain, MNEs must provide the highest quality products (De Meyer, Nakane & Miller, 1989; Fawcett, Birou & Taylor, 1993) while offering the product at lower costs (Goonatilake, 1990), and in the shortest time (Haug, 1985; Fawcett & Birou, 1992), including after-sales services (Porter, 1986). To achieve the above-mentioned goals, to maintain supremacy over competitors and to make the highest possible profits, related parties have, as a result of the relationship between them, the ability to conduct transactions that the parties would not be able to complete independently. Hence, the importance of regulations in the field of financial accounting reporting, which have, among other things, the objective of ensuring that related-party financial statements are not distorted by their presence or transactions.

At the same time, prices between related parties, known as transfer pricing, and in particular their tax value, are of overwhelming and growing importance, both for MNEs and for tax administrations, as they impact the group tax outcome and implicitly the level of taxes. For tax purposes, in order for a transaction involving transfer pricing to be considered as reflecting a fair price, the application of the arm's length principle is required. Thus, related parties, according to the arm's length principle, have to charge prices equivalent to those used in similar transactions and conditions between independent companies (OECD, 2022a). In practice, however, it's not easy to apply, because of product diversity, services traded, the rareness, and differences in the regulations of the countries involved (Pelekis, 2021).

Transfer pricing through related party transactions (RPT) is now widely used. From their inception to the present, government organizations, economists, managers, and researchers pay special attention to transfer pricing and RPT (Nguyen et al., 2020). Considerable effort has been made to normalize transfer pricing globally, and the Organization for Economic Cooperation and Development (OECD) has played a particularly important role in this regard. Although the legislative framework governing the use of transfer pricing was established many years ago, both the economy and international trade have developed rapidly and continuously, requiring transfer pricing rules to adapt to emerging conditions (Sikka, 2017). The literature refers to many situations in which tax authorities discover fraudulent schemes created by related parties in order to reduce the tax base especially when subsidiaries are located in tax havens (Barford & Holt, 2013; Duhigg & Kocieniewski, 2012; Osborne, 2011; Srnicek, 2017).

Transfer pricing as a part of RPT and as a tool for active evaluation of decentralized companies' units has been researched for more than 60 years, and therefore its content needs to be improved and updated (Coelho, 2000). With this in mind, this study aims to frame the productivity and impact of transfer pricing and RPT literature using a bibliographic portfolio of research conducted on these topics. The research methodology is based on a bibliometric analysis of the bibliographic profile in order to identify the most influential studies, authors, publications, articles, and keywords within the area of interest.

Transfer pricing and RPT are intensively debated, studied, and researched and are a reason why there is a need for a systematisation of the literature in this field. Although there is a large amount of research on transfer pricing and RPT, it is focused on specific directions, such as transfer pricing performance (Schafer et al., 2015), transaction cost economics (TCE) and resource-based firm valuation (Cecchini, Leitch & Strobel, ., 2013), the use of transfer pricing in creative accounting (Padhi, 2019), or analysed separately the research with focus on transfer pricing issue (Kumar et al., 2021) or RPT (El-Helaly, 2018; Maigoshi et al., 2016). Thus, one objective of this study is to outline the main research directions related to the transfer pricing concept and RPT, subjects intensively analysed since the middle of the twentieth century. This article is of interest because it considers both issues simultaneously—transfer pricing in respect to RPT.

For this bibliometric analysis, it was decided to collect data from two important archives: Web of Science Core Collection (WOS) and Scopus. Both databases are suitable as tools in scientometrics and bibliographic analysis (Archambault et al., 2006), as both have a high correlation (Sanchez, Del Rio & Garcia, 2017) and complete each other (Echchakoui, 2020). The final sample was composed of 1388 papers, published between 1968 and 2021. Following the analysis, the main research directions in the field were identified. Thus, the issue of transfer pricing presents the following areas: transfer pricing taxation, transfer pricing accounting, the economic context of transfer pricing, transfer pricing theories, fraudulent use of transfer pricing, and issues in which transfer pricing is related to sustainability, innovation, and ethics research. The disclosure of RPT is one subject of interest for many authors because of the impact of RPT on a company's performance. The authors also focus on use of RPT in earnings management and, as in case of transfer pricing, on fraudulent use of RPT.

The remainder of the paper is as follows: In the second section, a review of the literature is outlined to clarify the research subject. The third section develops the methodology, followed by the findings and discussions. Finally, the conclusions are presented, with the research limits and future proposals identified.

Transfer pricing, as an economic concept, is not a negative phenomenon and initially was not oriented for tax optimization (Petruzzi & Tavares, 2019). The introduction of transfer pricing was associated primarily with the need of inventory evaluation and secondly with the desire to determine the performance of separated parts of a business (McNally, 1973). A questionnaire conducted by Ernst & Young (2007) concluded that a large number of respondents (40%) consider transfer pricing to be the most important topic in the field of taxation. Special topics in transfer pricing research are cost allocation (Cools, Emmanuel & Jorissen, 2008; Kogut & Kulatilaka, 1994; Lambert, 2001; Westland, 1992) and the use of transfer pricing for tax purposes (Matsui, 2011; de Matta & Miller, 2015; Miller & de Matta, 2008).

RPTs assume the transfer of resources, services, or obligations occur between affiliated companies or parties. RPTs have become a key topic in the context of many recent financial scandals (Marchini, Mazza & Medioli, 2018). Researchers have identified totally contradictory roles for RPTs in international trade. If some believe that they serve to create value for a company, then others have shown that the purposes for which they are used are instead aimed at reporting low profits for tax purposes. Some research results show that RPTs are not earnings management tools (Alhadab, Abdullatif & Mansour, 2020; Nasution & Mita, 2017) and highlight their positive influence contributing to value creation of a business (Jian & Wong, 2010; Maigoshi, Latif & Kamardin, 2018; Munir et al., 2013). Contrary to what has just been mentioned, some studies have provided pertinent arguments that RPTs have been used for shareholder expropriation (Du, He & Yuen, 2013) and are involved in earnings management activities (Haji-Abdullah & Wan-Hussin, 2015; Jian & Wong, 2010; Maigoshi, Latif & Kamardin, 2016; Marchini et al., 2018). Both Huang and Liu, (2010), and Su and Fung, (2013) concluded that there is a strong link between RPT and company performance. In order to mitigate the negative effects of transactions between related parties on performance, it is necessary to implement effective corporate governance (Black et al., 2015; Chen, 2014; Yeh, Shu & Su, 2012). One condition in the effectiveness of corporate governance policies is the independence of executive managers (Baixauli-Soler & Sanchez-Marin, 2015). When corporate governance is reduced or lacking, it leads to misuse of RPTs (Adachi, 2006) and has the adverse effect of alienating the capital of insignificant shareholders (Berkman, Cole & Fu, 2010). Companies that voluntarily disclose RPT data have relevant corporate governance policies and have a lower risk of earnings management use (Lo & Wong, 2011). Evidence also shows that the presence of an insignificant number of board government investors increases the firm performance (Wong, Kim & Lo, 2015). A beneficial effect in this regard is also followed in transactions such as related party loans and guarantees (Doong, Fung & Wu, 2011). However, some studies show that the value and volume of RPTs influence performance in a negative way as they increase (Chen Y., Chen C.H. & Chen W., 2009; Firth, Wang & Wong, 2014).

Bibliometrics as a quantitative research method is based on bibliographic data evaluation. It has been extended to all areas (Bar-Ilan, 2008; Farrukh et al., 2020) and consists of quantitative research and researchers' assessments, providing an overview of trends in various research fields (Muhuri, Shukla & Abraham, 2019). Among the tools used in bibliometrics are the following: counting, sorting, grouping, classification, ranking data, researchers, publications, research institutions (etc.), analysis of citations, research topics, research results obtained, impact indicators calculation, and so forth. Bibliometrics is the right method for exploring, organizing, and analysing large volumes of information (Daim et al., 2006). This allowed the discovery of the past, understanding of the present, and outlining of the perspectives for future research (Albort-Morant et al., 2017; Cadavid-Higuita, Awad & Franco-Cardona, 2012). To analyse the existing literature in the field a mapping method was used involving bibliographic data analysis according to a corpus of research documents (Gonzalez-Torres et al., 2020).

3.1

Data pre-processing

The selection process took place on February 21, 2022, and involved the following steps: identification of studies, screening, and finally their inclusion in the sample (Page et al., 2021). Data was collected by one person. Figure 1 presents the full selection process step by step. Based on the terms transfer pric* and related part* transaction*, TP, and RPT, 1186 scientific papers from Scopus and 846 from WOS Core Collection published between 1968 and 2021 were identified. A total of 2032 studies were extracted. The use of asterisks in case of pric*, part*, and transaction* was enabled to identify the possible endings of these words in research (price, pricing, parts, party, transaction, transactions, etc.). The use of abbreviations such as TP (transfer pricing) and RPT (related party transactions) is also common for research literature in this field. In the next stage, only scientific articles and conference papers were taken into account from the multitude of existing types of documents, as they are considered to make a special contribution to research. It was decided that the sample of works be limited to those published in English from categories related to the Scopus archive: Business, Management and Accounting, Economics, Econometrics and Finance, Social Sciences, and Multidisciplinary. For WOS, the following categories were considered: Business Finance, Economics, Management, Business, Social Sciences Interdisciplinary, Multidisciplinary Sciences. Relevant search fields were document title, abstract, and keywords. With the help of Zotero software, 506 duplicates were removed. All items not related to transfer pricing and RPT subjects were excluded. Thus, the final sample chosen was composed of 1388 studies: 1201 scientific articles and 187 papers presented at conferences. Data was downloaded in RIS format, suitable for processing in VOSviewer Software.

Figure 1

The analysis of the conceptual structure of keywords via VOSviewer allowed us to obtain their graphic visualisation and to categorise them through their degree of interaction in eight research directions distinguished in Table 4 (Giraldo et al., 2019):

Because transfer pricing and RPT issues are emerging topics in research literature, this study sought to highlight the productivity and impact of transfer pricing and RPT literature in emerging research. Reasonable answers to research question proposed for discussion were found. The bibliometric analysis consisted of the evolution of publications, citations, presentation of authors with the most publications, identification of journals with the highest number of records, number of papers distributed according to the country of origin of the first author, number of repetitions, and keyword correlation. Most papers were published in 2020. The sample of articles recorded 16,694 citations, and more than 52% of their number includes the period 2016–2022. This confirms that the transfer pricing problem and RPT became popular in present research. The most cited paper (580 citations) entitled ‘Operating flexibility, global manufacturing, and the option value of a multinational network’ (1994), by Cogut, B., and Kulatilaka, N., addresses the subject of transfer pricing through shifting production into a multinational network. From 2,355 authors identified, Schjelderup, G., Rahmat, M.M., and Borkowski, S.C., were nominated as the three most productive authors. The journal Intertax has the highest number of publications (26 articles), with the second lowest impact factor (0.32), and the third lowest number of citations. The USA, China, and the UK are first three countries with the highest number of publications. The most frequently used keywords are: transfer pricing, related party transactions, corporate governance, multinational enterprise, costs, and profitability. Researchers interested in studying these topics internationally should conduct a search using the same keywords in order to find relevant articles in the field.

The analysis of keywords, as well as their division into clusters revealed a number of elements that helped to outline the main research directions. The research addresses transfer pricing from the following perspectives: transfer pricing taxation theories within which are transfer pricing theories, the fraudulent use of transfer pricing, as well as topics where transfer pricing has tangencies with sustainability, innovation, and ethics. In connection with related party transactions, studies focused on RPT disclosure, RPT performance, RPT earnings management, and the fraudulent use of RPT were revealed.

The results presented are limited to a set of articles that meet the selection criteria and databases used. Many authors who made an impactful academic contribution to research and who do not appear in these databases were not taken into account, although the research results would be relevant for bibliometric analysis and would outline a complete overview of issues studied. Secondly, in this research the differences between journals' impact factors as an indicator of the quality of the research is obvious. Thus, one can distinguish journals that have published a lot and have relatively large citations, but an insignificant impact factor and at the same time journals with few articles, but a high impact factor. Another limitation is that only one author has contributed to this bibliometric analysis, so that it could reflect only a point of view in data processing, results and conclusions. This research study may be helpful in identifying the most suitable journals for publication, potential collaborators, and areas for research and also to understand the research on transfer pricing and RPT, its current stage and future directions perspectives.